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PROCEEDINGS 

OF THE 

ACADEMY OF POLITICAL SCIENCE 

IN THE CITY OF NEW YORK 

Volume VIII] July, 1918 [Number 1 

NATIONAL CONFERENCE 
ON WAR ECONOMY 

A SERIES OF ADDRESSES AND PAPERS PRESENTED AT THE NATIONAL CONFERENCE 

ON WAR ECONOMY HELD UNDER THE JOINT AUSPICES OF THE BUREAU 

OF MUNICIPAL RESEARCH AND THE ACADEMY OF POLITICAL 

SCIENCE IN THE CITY OF NEW YORK, JULY 5-6, 1918 



EDITED BY 

HENRY RAYMOND MUSSEY 



THE ACADEMY OF POLITICAL *feC/lEN£E _ 

COLUMBIA UNIVERSITY* \ * ** ( 

116TH STREET AND BROADWAY, NfrftfrggRK ^. 
Copyright, 1918, by the Academy of Polittc*zVl(edce 

Monograph 



PROCEEDINGS 
OF THE ACADEMY OF POLITICAL SCIENCE 

The Proceedings are issued by the Acauemy as a record of its activities 
and as a means of giving detailed treatment to special subjects of impor- 
tance. At least one issue each year gives in full the papers read and the 
discussions at the annual meeting of the Academy. 

Recent issues are as follows: 

Volume VII 

No. 1. Labor Disputes and Public Service Corporations (January 1917), 

$1.50. 
No. 2. The Foreign Relations of the United States, Part I, 331 pp. (July 

1917). 
No. 3. The Foreign Relations of the United States, Part II, 130 pp. (July 

1917), $1.50. 
No. 4. Economic Conditions of Winning the War (February 1918), $1.50. 

Volume VIII 
No. 1. National Conference on War Economy, (July 1918). 

Beginning with Volume VII, No. 1, January 1, 1917, the Proceedings are 
no longer issued as a quarterly publication, but are published as occasion 
demands. They are sent free currently as issued to members and sub- 
scribing members of the Academy, together with the Political Science 
Quarterly. The annual membership fee is $5. Single issues of the Pro- 
ceedings and of the Political Science Quarterly may be purchased at the 
prices indicated on published announcements, or at special prices that will be 
quoted on request for numbers the supply of which is nearly exhausted. 

All business communications should be addressed to The Academy of 
Political Science, Kent Hall, Columbia University. 



B417!> , 
JUL 30 la|8 



%- 



PROCEEDINGS 

OF THE 

ACADEMY OF POLITICAL SCIENCE 




IN THE CITY OF NEW YORK 



Volume VIII] July, 1918 [Number 1 



NATIONAL CONFERENCE 
ON WAR ECONOMY 



A SERIES OF ADDRESSES AND PAPERS PRESENTED AT THE NATIONAL CONFERENCE 

ON WAR ECONOMY HELD UNDER THE JOINT AUSPICES OF THE BUREAU 

OF MUNICIPAL RESEARCH AND THE ACADEMY OF POLITICAL 

SCIENCE IN THE CITY OF NEW YORK, JULY 5-6, 1918 



EDITED BY 

HENRY RAYMOND MUSSEY 



The Academy of Political Science 

Columbia University, New York 

1918 









^ 



0<* 






Copyright by 
The Academy of Political Science 



CONTENTS 

NATIONAL CONFERENCE ON WAR ECONOMY 

I 

Page 

Executive Responsibility for War Economy . . 1 

Frank 0. Lowden 

The Illinois Civil Administrative Code ... 7 

Charles E. Woodward 

The First State Executive Budget .... 18 
Emerson C. Harrington 

Responsible Executive Leadership .... 29 
Frederick A. Cleveland 

Executive Leadership in a Democracy ... 42 
R. F nit on Cutting 

Executive Responsibility and a National Budget . 46 
Nicholas Murray Butler 

Virginia War Economy and the Budget System . 50 
LeRoy Hodges 

Discussion of Executive Leadership in a Democracy . 53 
Richard S. Childs 
William P. Burr 

II 

The Budget as an Instrument of Political Reform . 56 

W. F. Willoughby 

The Development of the Budget in Illinois . . 64 
Omar D. Wright 

iii 



iv CONTENTS 

Page 

The New Jersey Budget Law 69 

Arthur N. Pierson 

Discussion of the New Era in Budgets ... 75 
Victor Morawetz 
Robert E. Dowling 
Frank J. Goodnow 

III 

Capital Issues for State and Municipal Debts and 

Their Relation to War Financing ... 79 
Paul M. Warburg 

The Pay-as- You-Go Policy in New York City . . 94 
Charles L. Craig 

Financing Local Governments 102 

Mortimer L. Schiff 

The History of the Pay-as- You-Go Policy . . 106 

Arthur M. Anderson 

The Need for a Municipal Program . . . .111 
Howard Lee McBain 

IV 

Discussion of the Government as Employer . . 114 
Albert Shaw 
Thomas B. Love 
Hugh Frayne 
V. Everit Macy 
Sam A. Lewisohn 

V 
Report on the National Conference on War Economy 126 
R. Fulton Cutting 
Samuel McCune Lindsay 

List of Delegates Attending the Conference . 131 



EXECUTIVE RESPONSIBILITY IN ILLINOIS 1 

FRANK 0. LOWDEN 

Governor of Illinois 

IT is not necessary to point out to an audience of this kind 
that government is no longer the simple thing it was half a 
century ago. We have gradually been taking on new func- 
tions of government. Merely to preserve order is not the sole 
end of government in the minds of the American people today, 
and as government from year to year has taken on new functions 
it has created new agencies for the discharge of those functions. 

The most popular form which that agency has taken in recent 
years in the state, and perhaps in a lesser degree in the municipal- 
ities, has been the commission. When a commission was once 
established it was related to absolutely nothing else in the state 
government; it was theoretically responsible to the governor, but 
it was not articulated with any other branch of the government. 
Then, when another new activity was invoked, a new commission 
was organized, or some other form of activity to take its place. 
That had been going on year after year until in Illinois, at the 
beginning of 1917, there were something over 125 absolutely 
independent agencies of government having nothing to do with 
one another, not related or co-ordinated in any manner. Though 
each was theoretically responsible to the governor, of course in 
practice it was impossible for any governor, no matter what his 
industry, to exercise genuine supervision over this number of 
agencies. There was of course much overlapping of functions, 
there was much needless expense, and perhaps worst of all, there 
was of necessity great inefficiency. 

That is the problem we had to meet when our legislature assem- 
bled a year ago last January. Fortunately, a very able commission 
had been at work making a survey of our state government, and 
they made an admirable report. Taking that report as a basis, we 
tried to group these more than 125 agencies into a smaller num- 
ber, putting those that were related to the same general subject 



1 Read at the National Conference on War Economy, June 5, 1918. 



2 CONFERENCE ON WAR ECONOMY [Vol. VIII 

under one head. We found that nine departments would 
logically include all of them. Those departments were: finance, 
trade and commerce, public welfare, public works, labor, mines 
and minerals, agriculture, public health, and registration and edu- 
cation. 

After we had determined upon the number, the question of the 
form of the departments arose. It is perfectly obvious that it 
would have required a revision of all the laws of the state unless 
we simply conferred upon a department, when we decided upon it, 
all the powers that were possessed by the various agencies which 
were merged into the department. That we did. 

Next, the question arose whether in framing the administrative 
code we should define by law the functions of heads of bureaus 
and divisions within a department. I insisted strongly that all 
the powers in the department should be concentrated in the de- 
partment head, who, by rules and regulations, not by statute law, 
should provide exactly what the duties and powers of the subor- 
dinate divisions within that department should be. That view 
prevailed after much discussion. As a result, the head of a de- 
partment can be held to a strict responsibility, because every 
subordinate part of that department is absolutely within his con- 
trol. He can determine by rule and regulation exactly what the 
duty of every subordinate within the department shall be. If you 
do not accept that principle, you may have in form a government 
of departments, but in fact you will have a number of bureaus 
and divisions which are not responsive to the head of the depart- 
ment. That is exactly what has happened in Washington. You 
hear frequently that they have ten departments of government 
down there. They have hundreds, not ten, and for this reason: 
When Congress creates the Department of War, it does not stop 
there, but every time it establishes a new bureau in the War De- 
partment, it defines precisely and definitely just what the limits 
of that bureau are, and just what the bureau chief can or cannot 
do. The result is that the secretary of war is not the head of that 
department. He simply presides over any number of absolutely in- 
dependent bodies within that department. The result is that you 
cannot have responsible government, and our friends in Congress, 
who are largely lawyers, when they frame a law, get themselves 
into the mental attitude of a lawyer who is drawing a will, wanting 
to provide for every conceivable contingency that will arise in the 



No. 1] EXECUTIVE RESPONSIBILITY IN ILLINOIS 3 

course of the next two hundred years. The result is, however 
wise they may be, that red tape becomes absolutely inevitable, 
and it is not the fault of the administrator but the fault of the 
legislator that we have so much red tape in government. 

It so happens that during the development of perhaps the last 
half of the last century, the thought that was in men's minds when 
they framed constitutions and when they framed laws was, "You 
must prevent some public official from doing something wrong." 
They were thinking of that all the while, not of putting the public 
official in a position where he could affirmatively do something 
good. The ingenuity of man could never work out any scheme 
by which you can tie men's hands for evil and leave them free for 
good. You must give power commensurate with the responsi- 
bility which you are going to exact. So this administrative 
code, which we in Illinois adopted a year ago this last winter, 
had for its first principle the concentration of all the powers in 
the department in the head of that department. He is supreme, 
and therefore if I ask him why this has been done, or why the 
other thing has not been done, he cannot say that it is because he 
has no power, for he does have power, and therefore must take 
responsibility. 

The other great principle which we put into the code was this, 
that it is individuals who do things and not bodies of men. We 
have acquired the habit, of late years, of creating a commission 
every time something goes wrong. The fact is, and I submit this 
to you who have had experience in business, that it is the indi- 
vidual who executes all the while, and not a board or a commis- 
sion. There is no commission anywhere and there never was, 
and there is no board anywhere and there never was, that did 
things affirmatively unless it was absolutely dominated by one 
man, and the only benefit of the rest of them was in an advisory 
capacity, and if they did not hamper him, the body was fortunate. 
Now, if that is true, and it is true, I submit to you who have had 
experience with committees of all kinds, when it comes to admin- 
istration, since you must rely upon one man anyway, why not 
appoint him and omit the others ? Then he will not be hampered, 
at least. At the head of each of these nine departments we put 
a man and not a board nor a commission. We stood by that prin- 
ciple. It is true that there is wisdom in numbers, as we are told, 
and it is true that the man at the head of any great work likes the 



4 CONFERENCE ON WAR ECONOMY [Vol. VIII 

advice of other men. So, meeting your chairman's suggestion of 
co-operation on the part of citizens with public officials, we created 
advisory boards with no power to administer, no power to decide 
unless they were asked by the actual executive head of the de- 
partment. As a matter of fact they are frequently called into a 
meeting, their advice is sought for, they have just as much influ- 
ence, and yet the decision is actually made by the head of the 
department. We have used these advisory bodies very freely. In 
that way many of the most eminent people of our state are serv- 
ing the public, because there are many men whom you can get to 
work for nothing a year that you cannot get to work for $2,500 
a year. The result is that we have relations with the best thought 
and the best effort in the different lines of activity. 

The department of finance really became the keystone of the 
structure, and that, in effect, was a new department of state gov- 
ernment with us in Illinois. It was given two sets of powers. 
First, it was authorized to provide for a uniform system of book- 
keeping, and a system of reports of all the activities of the state, 
so that it could supervise all accounts rendered by any department. 
It had the power to ascertain the legality as well as the correct- 
ness of any account. It was required to approve of vouchers that 
should be paid. This department, therefore, was a very important 
part of the scheme of government that was created by the ad- 
ministrative code. 

The next and perhaps most important duty of all that was 
devolved upon the head of the department was the duty of the 
preparation of a budget. He was required not only to assemble 
the estimates and expenditures of the preceding year, but he was 
given power to require testimony by the head of a department 
who might make a request, upon the need of that request; in 
fact, he was given all the power that could be given him under 
the constitution, to make a thorough and exhaustive investigation 
into the needs of every department of government. 

He also was empowered to establish summary and controlling 
accounts. He was permitted to require the several departments 
at the beginning of a year, or before any part of an appropriation 
theretofore made could be expended, to make analyses month by 
month of how the head of that department proposed to apportion 
the amount of money granted to him among the several forms of 
activity within that department. 



No. 1] EXECUTIVE RESPONSIBILITY IN ILLINOIS 5 

Obviously, the department of finance is from the beginning of 
any fiscal year discharging the duties of a budget commission. 
Our fiscal year begins on July 1. Our department of finance, then, 
on July 1 begins in effect the preparation of the budget for the 
next biennium, because, by virtue of its power of scrutinizing 
accounts, and of going into accounts, and because of the require- 
ment that it shall approve of vouchers upon appropriations before 
they are paid, it must day by day be acquiring the information 
which is required for the initiation and preparation of the budget 
for the next biennium. Our legislature meets but once in two 
years, and therefore we appropriate for two years at a time. 

Of course we have had no opportunity to submit a budget pre- 
pared under this code. We do not know now just how we shall 
be able to co-operate with the general assembly when we do pre- 
pare it. But I think that the disposition of our general assembly 
is such that if it can be persuaded that a certain course is the 
right one, it will adopt that course. It must be remembered that 
our general assembly passed, of its own motion, legislation which 
abolished something over one hundred and twenty-five commis- 
sions, boards and other public officials. It is a good general 
assembly that will do that. 

It has always been an anomaly that the general assembly, a body 
not charged with the responsibility of expending public money, a 
body that has had nothing to do with the administration in detail, 
even if it had all the facilities, independently of the executive, 
should pass the appropriation bills. The whole theory, since the 
House of Commons has had power to vote supplies, was that it 
might be a check upon the arbitrary exercise of power by the 
executive. It was never assumed that any executive, whether 
king, president or governor, would expend less money than it was 
to the interest of the people that he should expend. But appro- 
priations had been made in all self-governing countries by the 
legislative body in order that there might be a check upon extrava- 
gant expenditures by the executive. It ought not to be necessary 
to guard against the expenditure of too little money by the gov- 
ernor by a constitutional requirement. Yet in order to make the 
budget which is prepared by the executive absolutely secure, there 
should be an amendment such as was contained in your rejected 
New York constitution, providing that the executive budget should 
be acted upon before any other appropriation bill is considered. 



6 CONFERENCE ON WAR ECONOMY [Vol. VIII 

Of course many men believe that a budget is not necessary, 
because the people are always willing to vote all the money that 
is required for useful public purposes. I think that is true, but 
it is human nature that the better you know how much money you 
are going to have to expend, the more you will get for it. That 
applies to corporations and public bodies as much as to individuals. 
Therefore, until you have ascertained what you can reasonably 
raise, you are not in a position to apportion that money intelli- 
gently among the expenditures, and whenever you find a business 
man who runs away from his balance sheet, you find a business 
man with a receivership coming very soon. That is what we have 
been doing with our public expenditures all these years. The 
mere fact that we are great and rich and powerful makes it all 
the more important that we do ascertain, and ascertain before we 
begin to make up a budget, what we ought to expend, and what we 
reasonably can expend during the following year. 

The time has come in this country when we ought to begin to 
lay down a definite and concrete program for the financing of this 
war. We know now about how much money we can raise by 
direct taxation. It ought to be possible, in the light of the experi- 
ence we have had during these three loans, for the treasury offi- 
cials and the financial powers of the country to ascertain how 
much money can be raised from the issue of bonds each year, 
indefinitely. When that is done the amount will certainly be large 
enough to finance this war indefinitely, and when the people have 
reconciled themselves to that, we have gone a long way towards 
winning the war. In other words, if we find that in addition to 
what we raise by direct taxation we can safely raise only ten bil- 
lion dollars a year by the issue of bonds, we shall find that that ten 
billions, with the other billions that we are raising by direct taxa- 
tion, will be enough — we will make it enough — to finance this 
war indefinitely. When we have adopted the principle of uni- 
versal military service, and when we have adopted a definite and 
concrete financial program, we shall have served notice upon the 
people of Central Europe that we are going to fight this war out 
for the next century, if necessary, and we shall have gone a long 
way toward winning it. 



THE ILLINOIS CIVIL ADMINISTRATIVE CODE 1 

CHARLES E. WOODWARD 
Ottawa, Illinois 

COMMENCING about 1911 the states began a serious 
study of their administrative systems. The development 
of state governments, prior thereto, was along the line of 
popular control and the preservation of the balance between legis- 
lative, executive and judicial departments. In the meantime, how- 
ever, economic conditions, social reorganization and growth, the 
increase of population, the advancement of science and the prog- 
ress of humanity cast upon the states increased burdens and 
responsibilities. To discharge the increased duties, states resorted 
to boards, bureaus and commissions. The period between legisla- 
tive sessions created new conditions demanding the oversight and 
control of government agencies. Hence, incongruities and absur- 
dities resulted. Separate and disjointed authorities, acting with- 
out reference to one another, or to any central authority, were 
the rule and not the exception. The result was chaos, confusion, 
duplication of work, overlapping of duties and division of respon- 
sibility. 

Out of this lack of system new problems emerged. The ques- 
tions of energy and efficiency of government began to attract 
attention. The chaotic condition in Illinois received the serious 
consideration of the legislature in 1913 when a Committee on Effi- 
ciency and Economy was constituted 

to investigate all departments of the state government, including all 
boards, bureaus and commissions which have been created by the general 
assembly, such investigations to be made with a view of securing a more 
perfect system of accounting, combining and centralizing the duties of the 
various departments, abolishing such as are useless, and securing for the 
State of Illinois such re-organization as will promote greater efficiency 
and greater economy in her various branches of government. 

The committee employed experts and made a thorough study and 
survey of the details of the state government. It made its report 



x Read at the National Conference on War Economy, June 5, 1918. 



8 CONFERENCE ON WAR ECONOMY [Vol. VIII 

and recommendations to the general assembly in 1915. The com- 
mittee caused bills to be introduced in the general assembly in 1915 
to carry into effect the recommendations of the committee; but, 
with the exception of a bill revising the law in relation to state 
contracts, none of the bills passed either house of the general 
assembly. In his pre-primary campaign for the Republican nomi- 
nation for governor, Colonel Lowden, in his numerous speeches, 
laid stress upon the illogical organization of the state government, 
and insisted that, if state governments were to be respected, their 
numerous and over-lapping boards must be consolidated, and the 
budget system of appropriations and expenditures must be substi- 
tuted for the hap-hazard system then existing. 
In his inaugural message Governor Lowden said : 

Administrative agencies have been multiplied in bewildering confusion. 
They have been created without reference to their ability economically and 
effectively to administer the laws. Separate boards govern the peniten- 
tiaries, the reformatories, and the educational institutions. Several boards 
and commissions have charge of matters affecting the agricultural inter- 
ests. Administration of laws affecting labor is parceled out among numer- 
ous agencies, including several boards having jurisdiction of mining prob- 
lems and several free employment agencies, each independent of the other. 
Our finance administration is chaotic, illogical and confused. 

The administration of the health laws is divided between boards and 
commissions, with no effective means of co-ordination. Our educational 
agencies are not harmonious. Over one hundred officers, boards, agencies, 
commissions, institutions, and departments are charged with the admin- 
istration of our laws. No systematic organization exists, and no adequate 
control can be exercised. Diffusion rather than concentration and respon- 
sibility marks our system. 

One of the imperative needs of the state is the consolidation of its 
multiplied agencies into a few principal departments. The governor is 
held responsible for the conduct of the state government. His executive 
functions should be discharged through a limited number of agencies over 
which he may exercise actual control. Under the present system of con- 
fusing perplexity, the governor cannot exercise the supervision and control 
which the people have a right to demand. 

In the meantime, work had been commenced on the necessary 
bills to vitalize into law the ideas expressed by Governor Lowden 
both in his campaign and in his inaugural message. The facts 
gathered by the Efficiency and Economy Committee, and embodied 
in its report, constituted the basis for the preparation of legislative 
measures. In general, the committee recommended the re-organi- 



No. 1] ILLINOIS CIVIL ADMINISTRATIVE CODE 9 

zation and consolidation of more than one hundred separate offices, 
boards, bureaus and commissions into ten executive departments. 
Following its general recommendation, the committee made specific 
recommendations as to the constitution of the several proposed 
departments. 

The specific form of organization recommended by the commit- 
tee was, after mature deliberation, rejected as not conducing to 
either strength, harmony or unity of administration. For example, 
the committee recommended the creation of a department of 
finance, under a state finance commission, consisting of a state 
controller, a tax commissioner, a revenue commissioner and the 
auditor of public accounts and the state treasurer ex officio. 

Each official was to be in charge of a particular division and 
each having specific statutory duties to perform. Again, the com- 
mittee recommended the establishment of a department of public 
works and buildings 

under a public works commission of three members, one to be commis- 
sioner of highways, one commissioner of waterways and one fish and game 
commissioner; with bureaus for each of these services and also other 
bureaus under the superintendent of buildings and grounds, the superin- 
tendent of state parks and the state art commission. 

The specific recommendations contemplated bureaus within 
bureaus, and divisions within divisions. In some instances, an 
individual was placed at the head of a department, and in others a 
board or commission was made the directing head. Statutory 
duties were devolved upon subordinate officers and boards within 
a department. For all practical purposes the several offices, 
boards and bureaus were independent. As the scheme was out- 
lined, no department would have an actual and responsible head 
having control of all the activities of his department. 

It occurred to Governor Lowden, therefore, that while the gen- 
eral conclusion of the Efficiency and Economy Commission was 
valid and should be incorporated into law, yet the specific methods 
recommended were not only inexpedient, but detrimental to admin- 
istrative efficiency. It seemed to him that the central idea of the 
report could be carried into effect by a single enactment. The bill, 
as finally drafted, proceeded upon the theory of the administra- 
tive reorganization of the several departments. It abolished numer- 
ous independent offices, bureaus, boards and commissions. It sub- 



10 CONFERENCE ON WAR ECONOMY [Vol. VIII 

stituted in their place nine departments, in each of which is a 
responsible head known as a director. Each director is vested with 
ample authority of supervision and control. Subordinate division 
heads act under the great department leader. The department 
leaders labor together in co-operation with the governor as the 
supreme head. State activities are fused and welded into one 
coherent mass. Dealing with functions, the act simply consolidates 
governmental agencies. No additional powers or duties were given 
to the governor. No new duties on the part of the citizen were 
created. The substantive law remains the same. Only the instru- 
mentalities through which it is enforced are changed. 

Our legislators have too long ignored a vital principle in the 
enactment of administrative statutes. Administrative statutes are 
cluttered up with great elaboration of detail as to the means by 
which an administrative officer shall discharge his duties. Pursuing 
this theory, the legislature assumes the duties, without the respon- 
sibilities, of administration. The result has been that administra- 
tion as well as legislation has been written into our statute law. 
The extreme of popular control was secured ; energy and efficiency 
of administration were sacrificed. 

The Illinois Civil Administrative Code is elastic and flexible. It 
omits details as to the inter-relationship between the offices which 
it creates. It enumerates broad general principles by which the 
government shall be administered. For instance, it provides that 
the department of finance shall "prescribe and require the installa- 
tion of a uniform system of bookkeeping, accounting and reporting 
for the several departments," but does not attempt to enumerate 
any further rules on that subject for the guidance of the head of 
the department. It prescribes no duties for any subordinate execu- 
tive officer. The act proceeds upon the theory that the work of 
each department will necessarily fall into broad, general classifi- 
cations or divisions. It is assumed that the director of the depart- 
ment will organize his work and assign his subordinate officers to 
such duties as the exigencies of business may from time to time 
require. By this means not only are elasticity and flexibility 
secured, but responsiveness and responsibility of administration 
are assured. 

The Civil Administrative Code organizes the civil governmental 
agencies under the jurisdiction of the governor, with the exception 



No. 1] ILLINOIS CIVIL ADMINISTRATIVE CODE 11 

of the civil service commission and of certain temporary boards, 
into nine departments as follows : 

(1) The department of finance 

(2) The department of agriculture 

(3) The department of labor 

(4) The department of mines and minerals 

(5) The department of public works and buildings 

(6) The department of public welfare 

(7) The department of public health 

(8) The department of trade and commerce 

(9) The department of registration and education. 

The officers and boards under the civil administrative code are 
divided into three classes, namely, (1) executive officers; (2) 
quasi-judicial or quasi-legislative boards; and (3) non-executive 
boards. 

In the survey of the activities of the state government it was 
found that there were certain boards or commissions which dis- 
charged quasi-judicial or quasi-legislative functions. In the dis- 
charge of functions which are purely executive, the fundamental 
principles of government dictate that one man should have the 
entire responsibility. However, in the discharge of functions which 
are quasi-judicial or quasi-legislative, it is essential that the opinion 
of a reasonable number of men, acting as an entity, should be pro- 
cured. Hence in the construction of the Civil Administrative Code 
all functions which are primarily quasi- judicial or quasi-legislative 
are committed to the proper board or commission. The quasi- 
judicial or quasi-legislative boards are as follows: the food stand- 
ard commission in the department of agriculture, composed of 
three persons ; the industrial commission in the department of 
labor, composed of five persons ; the mining board in the depart- 
ment of mines and minerals, composed of five persons ; the miners' 
examining board in the department of mines and minerals, com- 
posed of four persons ; the public utilities commission in the depart- 
ment of trade and commerce, composed of five persons ; and the 
normal school board in the department of registration and educa- 
tion, composed of ten persons. Each board acts as an entity. 
While the director of mines and minerals is a member of the mining 
board, and the director of registration and education is a member 
of the normal school board, yet each quasi- judicial or quasi-legis- 
lative board exercises its quasi-judicial or quasi-legislative func- 



12 CONFERENCE ON WAR ECONOMY [Vol. VIII 

tions without any supervision, direction or control by the director 
of the department. Each such board, however, is a component part 
of the department to which it belongs, and is not independent of 
the general system of finance and budget to which all officers under 
the code are subjected. Both the executive officers and the mem- 
bers of the quasi-judicial and quasi-legislative boards, excepting 
two food standard officers, the members of the mining board, and 
the members of the normal school board, are required to devote 
their full time and attention to the duties of their several offices. 
For this purpose each receives a fixed annual compensation. 

Many questions of policy and expediency are presented for solu- 
tion in an executive department. To assist and advise the director 
of the department and the governor in matters of broad policy of 
administration, it was deemed wise to make provisions for advisory 
boards. Hence advisory boards were created as follows : the board 
of agricultural advisers in the department of agriculture, composed 
of fifteen persons ; a board of state fair advisers in the department 
of agriculture, composed of nine persons ; a board of Illinois free 
employment office advisers in the department of labor, composed 
of five persons ; a board of local free employment office advisers in 
the department of labor, composed of five persons from each em- 
ployment office ; a board of art advisers, a board of water resource 
advisers, a board of highway advisers, a board of parks and build- 
ings advisers, each in the department of public works and build- 
ings, and each composed of five persons ; a board of public welfare 
commissioners in the department of public welfare, composed of 
five persons ; a board of public health advisers in the department 
of public health, composed of five persons; a board of natural 
resources and conservation advisers, composed of seven persons; 
and a board of state museum advisers, in the department of regis- 
tration and education, composed of five persons. The object of the 
advisory boards as above indicated was to put at the service of the 
state the expert skill of persons who were qualified in their particu- 
lar lines of endeavor but who, though unable to devote their entire 
time and attention to the business of the state, would, as a matter 
of public duty, put their skill and professional experience at its dis- 
posal. The members of the several advisory boards receive no 
compensation. 

One of the objects intended to be accomplished by the code is to 
secure a responsive and responsible administration. The governor 



No. 1] ILLINOIS CIVIL ADMINISTRATIVE CODE 13 

can discharge the varied activities committed to him by the con- 
stitution and the statutes only through the instrumentality of sub- 
ordinate officers. He should be given full power to succeed or to 
fail. At the very moment when he takes the oath of office, he 
should be given full control of all executive agencies responsible to 
him, in order that his administrative policy may be guided and 
directed by men in sympathy with his program. Hence the admin- 
istrative code provides that the term of office of all officers created 
by it, excepting the members of the normal school board, shall 
commence on the same day as that of the governor. The term of 
each officer, therefore, with the exception noted, is four years. The 
term of office of the members of the normal school board, other 
than that of the director, is six years, three members t retiring 
each two years. Upon taking the oath of office, therefore, the 
governor is in full and complete charge of all of the activities 
of his administration, and can institute at once, and without em- 
barrassment, the executive policies which he desires to be worked 
out. 

Under the practice prevailing prior to July 1, 1917, it was diffi- 
cult in many cases for the citizen having business with any board 
or commission to ascertain the business address of such board or 
commission. Some were located in Springfield, some in Chicago, 
and some throughout the smaller cities of the state. The code 
changes all this. Any citizen having business with any of the 
executive departments under the governor can transact such 
business through the central office at Springfield. Each depart- 
ment is required to maintain at the capital a central office, but for 
the discharge of certain activities of its department, it may main- 
tain branch offices in other parts of the state. In this way it is 
intended to work out a plan by which thousands of dollars may be 
saved by the state on account of the rent of offices, not only in 
Chicago but elsewhere. 

Closely allied with the subject of centralized offices at Spring- 
field is that of co-operation and co-ordination of work as between 
departments. Not only may the great number of offices rented 
for the use of the several departments be greatly reduced,, but the 
employes of a given department may be used to discharge func- 
tions pertaining to other departments, thus reducing the number 
of employes, and increasing the efficiency of administration. In- 
asmuch as the code does not revise and codify the statutory law 



14 CONFERENCE ON WAR ECONOMY [Vol. VIII 

pertaining to the several departments, but leaves the substantive 
law just as it is, to be enforced by the proper department, it was 
inevitable that there should be overlapping and duplication of 
functions. By the provisions of the code, providing for co-opera- 
tion between departments, this duplication, in the practical admin- 
istration of laws, is to a large extent done away with, without the 
necessity of any subsequent legislation. 

In addition to the provision relative to co-operation between de- 
partments, the code creates a strong centralized purchasing agency 
in the department of public works and buildings. Prior to July 
1, 1917, each board, commission or officer purchased his own sup- 
plies. Under the code, the department of public works and build- 
ings is required to make purchases for all departments, thus afford- 
ing a means by which the state may not only standardize its pur- 
chases, but effect a great saving in money by reason of purchasing 
in large quantities. 

The department of finance is probably the most important of the 
new departments. Roughly speaking, the functions of the depart- 
ment of finance may be classified as follows: (1) To prescribe 
and install a uniform system of bookkeeping, accounting and 
reporting; (2) to examine into the accuracy and legality of the 
accounts and expenditures of the several departments; (3) to 
examine and approve, or disapprove, all bills, vouchers and claims 
of the several departments ; (4) to prepare and report to the gov- 
ernor estimates of the income and revenues of the state; (5) to 
prepare and submit to the governor a state budget; and (6) to 
formulate plans for the better co-ordination of departments. 

Through this department a centralized control of the expendi- 
tures made by agencies responsible to the governor is effected. 

While the department of finance has no direct control over the 
expenditures made by any department other than those created by 
the Civil Administrative Code, yet it is required to make a study of 
the whole field of governmental needs, and to prepare and submit 
to the governor, to be by him submitted to the general assembly, a 
state budget, embracing therein the estimated revenues, and the 
needs, not only of the several departments under the code, but of 
all other agencies of the government other than the general assem- 
bly. The budget of the department of finance will disclose the 
needs of the state, together with full information based upon thor- 
ough and detailed study. When the next general assembly con- 



No. 1] ILLINOIS CIVIL ADMINISTRATIVE CODE IS 

venes it will have before it, for the first time in its history, ade- 
quate, classified and detailed information upon which appropria- 
tions may be made with intelligence. 

The department of finance was practically a new conception. It 
took over no work performed by any other board or commission. 
Not so with the other departments. The department of agriculture 
is charged with the exercise of the powers and duties vested by 
law in the following: (1) The board of live stock commissioners; 
(2) the state veterinarian ; (3) the stallion registration board ; (4) 
the state inspectors of apiaries; (5) the state game and fish com- 
mission; (6) the state food commissioner; (7) the state ento- 
mologist; (8) the humane agents; (9) the state laboratory; and 
(10) the state fair board after January 1, 1919. It is also charged 
with certain affirmative duties pertaining to the procuring and dis- 
seminating of knowledge relative to agricultural interests. 

The department of labor is charged with the exercise of the 
powers and duties vested by law in the following : ( 1 ) The com- 
missioners of labor; (2) the free employment offices and local 
free employment offices; (3) the chief inspector of private em- 
ployment agencies; (4) the chief factory inspector; (5) the state 
board of arbitration and conciliation; (6) the industrial board. 
(7) It is also charged with the collection of data and information 
relative to labor and the dissemination thereof. 

The department of mines and minerals is charged with the 
exercise of the powers and duties vested by law in the following : 
(1) The state mining board; (2) the state mine inspectors; (3) 
the miners' examining commission; (4) the mine fire fighting and 
rescue commission; (5) the Illinois miners' and mechanics' in- 
stitutes. 

The department of public works and buildings is charged with 
the exercise of the powers and duties vested by law in the follow- 
ing: (1) The state highway commission; (2) the canal com- 
missioners; (3) the rivers and lakes commission; (4) the Illinois 
waterway commission; (5) the Illinois park commission; (6) the 
Fort Massac trustees; (7) the Lincoln Homestead trustees; (8) 
the Lincoln Monument commissioners; (9) the superintendent of 
printing; (10) the supervising engineer; (11) the state art com- 
mission; (12) the state inspector of masonry. The office of the 
state architect is abolished, and the policy of providing for a super- 
vising architect is substituted. The department of public works 



16 CONFERENCE ON WAR ECONOMY [Vol. VIII 

and buildings is given supervision over all public monuments and 
memorials erected by the state. 

The department of public welfare is charged with the exercise 
of the powers and duties vested by law in the following : ( 1 ) The 
board of administration, which had jurisdiction over the charitable 
institutions of the state, consolidated by the act of 1912; (2) the 
state deportation agent; (3) the state agent for the visitation of 
children; (4) the Illinois penitentiary; (5) the Southern Illinois 
penitentiary; (6) the Illinois state reformatory; (7) the board of 
prison industries; (8) the board of classification; and (9) the 
board of pardons. Under the department of public welfare the 
administration of all the charitable institutions and of all the penal 
institutions is consolidated. 

The department of public health is charged with the exercise of 
the powers and duties vested by law in the state board of health, 
excepting the registration of physicians, midwives and embalmers. 
Other broad and general powers relating to health and sanitation 
are vested in this department. 

The department of trade and commerce is charged with the 
exercise of the powers and duties vested by law in the following : 
(1) The public utilities commission; (2) the insurance superin- 
tendent; (3) the grain inspection department; (4) the inspector of 
automatic couplers; (5) the state fire marshal; and (6) the statute 
in relation to weights and measures. 

The work of the department of registration and education falls 
under three principal classifications. Under it are consolidated for 
administrative purposes the five normal schools. The principal 
work of the department will be the examination of applicants for 
the trades and professions. It will exercise the license powers 
vested by law in: (1) The board of veterinarian examiners; (2) 
the board of examiners of horseshoers; (3) the state board 
of examiners of architects; (4) the state board of examiners 
of structural engineers; (5) the state board of health; (6) the 
state board of pharmacy; (7) the state board of dental ex- 
aminers; (8) the state board of nurse examiners; (9) the state 
board of optometry; and (10) the state board of barber examiners. 
Another function of the department of registration and education 
is to act as the scientific and investigating body for the other de- 
partments. To that end its educational activities may be roughly 
classified as relating to conservation and development of natural 



No. 1] ILLINOIS CIVIL ADMINISTRATIVE CODE 17 

resources, the study of the zoology and botany of the state, the 
maintenance of a state museum for the collection and preservation 
of objects of scientific and artistic value, and the study of ento- 
mology, water resources and geology. 

The code is not so comprehensive as it should be. It was found 
impractical and inexpedient to make the consolidation act as com- 
prehensive as the theory of administrative consolidation would 
permit. The theory was modified by the constitutional provision 
creating the independent state offices of secretary of state, auditor 
of public accounts, state treasurer, superintendent of public in- 
struction, and attorney general, and prescribing to these officers 
certain duties. 

It was further modified by the provisions of the state statutes 
relating to the election by the people of a board of equalization, 
and of trustees of the University of Illinois. However, as above 
noted, it consolidates into one coherent system practically all the 
activities for which the governor is responsible. It is safe to say 
that the Illinois Civil Administrative Code constitutes a radical 
innovation in state administration. While necessarily omitting 
certain state activities, it is the first comprehensive scheme enacted 
into law to render our state government stronger and more efficient. 



THE FIRST STATE EXECUTIVE BUDGET 1 

EMERSON C. HARRINGTON 
Governor of Maryland 

THE Executive Budget was established in Maryland by 
an amendment to our state constitution. The legislature 
of Maryland at its regular session of 1916 passed a bill 
amending the constitution of the state so as to provide for an 
Executive Budget for Maryland, and as required under our con- 
stitution this amendment was submitted to the people of our 
state for their approval or rejection. At the general election of 
1916 it was approved by the people by an overwhelming majority, 
and therefore all appropriations thereafter had to be made in 
accordance with the Budget Amendment. The manner of passing 
appropriations, leading as it did to appropriations by the legisla- 
ture of 1914, for the fiscal years intervening from one legislature 
to another, of over $1,500,000 in excess of the revenues for the 
same time, at a time when the governor was of one political 
faith and the legislature of another, had caused both political 
parties to make the fiscal condition of the state the leading issue, 
and thereby both of the two great political parties declared in 
favor of an Executive Budget. The result was that the passage 
of the amendment by the legislature and its ratification by the 
people was proposed and carried most opportunely. Our legis- 
latures meet every two years, so that the real test or try-out 
occurred at the last legislature, the legislature of 1918. 

I presume the manner of appropriating money by the legislatures 
of the different states has heretofore been similar to our own, that 
the Finance or Ways and Means Committee would not bring out 
the bill until almost the last moment. Then the bill carrying all 
the expenditures for the state departments and the state govern- 
ment was finally passed in the last hours under a suspension of 
the rules, generally allowing each senator or delegate practically 
what he wanted for his own county or locality, regardless of the 
amount appropriated, and leaving it to the executive to do the 
paring. In our state the executive, it is true, could cut down or 



x Read at the National Conference on War Economy, June 5, 1918. 



No. 1] FIRST STATE EXECUTIVE BUDGET 19 

veto the separate items of an appropriation bill, but I understand 
that in many states even this cannot be done. The members of the 
two committees appropriated this money upon no scientific or 
expert plan and had not before them any synopsis or summary 
either of the revenues or their contemplated expenditures. Largely 
it was a question of log rolling and of senatorial or delegate cour- 
tesy. In our state we had also a system of continuing or annual 
appropriations, which when made and marked annual would go on 
forever as appropriations without any further legislative action. 
Some of these appropriations of ours were of over 100 years' 
standing, and most of them were not known to exist by the average 
member of the legislature. As a preliminary to all budget making 
the legislature of 1916 wiped out all continuing appropriations of 
every kind or character whatsoever, so that no money could be 
available except what was specially stated in the appropriation 
bill. 

Our Budget Amendment was drawn after the most careful con- 
sideration by a Budget Committee which I appointed, with Presi- 
dent Goodnow, of Johns Hopkins University, as chairman. 

I will briefly state the points of this amendment: 

Section 52. The general assembly shall not appropriate any money out 
of the Treasury except with the following provisions : 

Sub-Section A : Every Appropriation Bill shall be either a Budget Bill, 
or a Supplementary Appropriation Bill, as hereinafter mentioned. 

Sub-Section B: Within twenty days after the convening of the general 
assembly (except in the case of a newly elected governor) and then within 
thirty days after his inauguration (unless such time shall be extended 
by the general assembly for the session at which the Budget is to be sub- 
mitted, the governor shall submit to the general assembly two budgets, 
one for each of the ensuing fiscal years. Each budget shall contain a 
complete plan of proposed expenditures and estimated revenues for the 
particular fiscal year to which it relates ; and shall show the estimated 
surplus or deficit of revenue at the end of such year. Accompanying each 
budget shall be a statement showing: (1) the revenues and expenditures 
for each of the two fiscal years next preceding; (2) the current assets, 
liabilities, reserves and surplus or deficit of the state; (3) the debts and 
funds of the state ; (4) an estimate of the state's financial condition as of 
the beginning and end of each of the fiscal years covered by the two 
budgets above provided; (5) any explanation the governor may desire to 
make as to the important features of any budget and any suggestion as to 
methods for the reduction or increase of the state's revenue. 

Second. — Each budget shall be divided into two parts, and the first part 
shall be designated "governmental appropriations" and shall embrace an 



20 CONFERENCE ON WAR ECONOMY [Vol. VIII 

itemized estimate of the appropriations: (1) for the general assembly 
as certified to the governor in the manner hereinafter provided; (2) for 
the executive department; (3) for the judiciary department as provided 
by law, certified to the governor by the comptroller; (4) to pay and dis- 
charge the principal and interest of the debt of the state of Maryland in 
conformity with Section 34 of Article III of the constitution, and all laws 
enacted in pursuance thereof; (5) for the salaries payable by the state 
under the constitution and laws of the state; (6) for the establishment 
and maintenance throughout the state of a thorough and efficient system 
of public schools in conformity with Article VIII of the constitution and 
with the laws of the state; (7) for such other purposes as are set forth 
in the constitution of the state. 

Third. — The second part shall be designated "general appropriations," 
and shall include all other estimates of appropriations. 

The governor shall deliver to the presiding officer of each house the 
budgets and a bill for all the proposed appropriations of the budgets 
clearly itemized and classified ; and the presiding officer of each house shall 
promptly cause said bill to be introduced therein, and such bill shall be 
known as the "Budget Bill." The governor may, before final action 
thereon by the general assembly, amend or supplement either of said 
budgets to correct an oversight or in case of an emergency, with the con- 
sent of the general assembly, by delivering such an amendment or supple- 
ment to the presiding officers of both houses ; and such amendment or 
supplement shall thereby become a part of said budget bill as an addi- 
tion to the items of said bill or as a modification of or a substitute for 
any item of said bill such amendment or supplement may affect. 

The general assembly shall not amend the budget bill so as to affect 
either the obligations of the state under Section 34 of Article III of the 
constitution, or the provision made by the laws of the state for the estab- 
lishment and maintenance of a system of public schools, or the payment 
of any salaries required to be paid by the state of Maryland by the con- 
stitution thereof. 

The general assembly may increase or diminish the items relat- 
ing to the general assembly and may increase, but not decrease., 
the items therein relating to the judiciary. In all other respects 
the legislature cannot increase any items of appropriation, but may 
strike out or decrease, with one exception, that is, it cannot de- 
crease the salary of a public official during his legal tenure of 
office. 

The budget bill as then passed by both houses becomes a law 
without the governor's signature. 

The governor or any one of the department heads designated by 
the governor has the right to appear and be heard in respect to 
any budget bills while they are being considered, and still further 



No. 1] FIRST STATE EXECUTIVE BUDGET 21 

it is made his duty to do so if requested by either house of the 
legislature, to answer inquiries relating thereto. 

Sub-Section C; Supplementary Appropriation Bills: Neither house shall 
consider other appropriations until the Budget Bill has been finally acted 
upon by both houses, and no such other appropriation shall be valid except 
in accordance with the provisions following: (1) Every such appropria- 
tion shall be embodied in a separate bill limited to some single work, 
object or purpose therein stated and called herein a supplementary appro- 
priation bill; (2) Each supplementary appropriation bill shall provide the 
revenue necessary to pay the approriation thereby made by a tax, direct or 
indirect, to be laid and collected as shall be decided in said Bill. 

A majority in each house of the whole number elected is re- 
quired to pass a supplementary bill and the yeas and nays must be 
recorded. The requirement for the revenue to be provided in the 
bill places the responsibility, whether the tax be a direct or an in- 
direct one. Moreover, all supplementary bills are to be presented 
to the governor and are subject to his veto under the same condi- 
tions as now apply. 

Nothing, however, shall be construed to prevent the legislature, 
under the same conditions and qualifications as now, from passing 
any bill to pay for any obligation of the state of Maryland under 
the provisions of section 10 of article 1 of the Constitution of the 
United States. Should the budget bill not be finally acted upon 
within three days before the expiration of the regular session, 
the governor can by proclamation extend the term, but no other 
matter save the budget bill shall be considered except as to its cost. 

Likewise, the governor is given full power to require all depart- 
ments and heads to report to him and all institutions applying for 
or receiving state aid to give such itemized estimates and informa- 
tion as, and in such form as he may desire. 

The governor has the power to provide for public hearings and 
to compel attendance of all necessary parties. 

The legislature may enact such laws as may be found necessary 
from time to time to carry out the provisions of this constitutional 
amendment. 

In the case of any inconsistency between any provisions of this 
amendment and any other of the constitution, the provision of this 
amendment shall prevail. Nothing in the amendment, however, 
shall effect any obligations as to the public debt as provided for in 
section 34 of article 10 of our Constitution ; and the governor may 
as heretofore call an extra session of the legislature for the same 



22 CONFERENCE ON WAR ECONOMY [Vol. VIII 

purposes as now provided, and in such a case the legislature can 
consider any emergency appropriation or appropriations. 

In our budget system, the items of the budget can be reduced 
or eliminated, but not increased by the legislature. This limitation 
is fundamental in my opinion for any sound budget system. It 
will be noticed that the governor has to include the salaries pro- 
vided for by law for the public officials, also the salaries and ex- 
penses of the judiciary have to be included as certified to him by 
the controller as fixed by statute, and third, that the legislature 
has control of its own running expenses, the governor having to 
put into the budget what the presiding officers of the legislature 
estimate as the proper expenditures for the succeeding legislature. 
The idea was that the governor should not have the power to 
reduce salaries fixed by the constitution or by law, and that the 
independence of the judiciary and the legislature as to their own 
expenses should be maintained. 

Now for the operation of the Executive Budget. The legisla- 
ture of 1916 had not specially provided for any aid for the gov- 
ernor in preparing the budget, nor had they appropriated any 
special sum for that purpose, but the governor had a very fair 
contingent fund which was available for such a contingency, and 
as the present governor had been the controller of the state for 
the four years previous to his election as governor he had the 
advantage of intimate knowledge of the fiscal affairs of the 
state and of the needs and the necessities of the different depart- 
ments. He was, therefore, enabled by the help of Mr. A. E. 
Buck, recommended by Dr. Beard of the Bureau of Municipal 
Research of New York city, together with his own office force, 
to complete the budget practically within the time prescribed by 
the constitutional amendment. 

Our legislature of 1918 made appropriations for the two fol- 
lowing fiscal years, the first beginning October 1, 1918, and end- 
ing September 30, 1919, and the second beginning October 1, 
1919, and ending September 30, 1920, called with us the fiscal 
years 19 and 20. 

First we prepared and forwarded to all state institutions or 
departments certain blanks to be filled in by the proper authorities 
and requiring them to furnish, first, all their receipts and expendi- 
tures for 1917, giving the names and positions of all employes, 
and, second, their requirements for 1919 and 1920, under proper 
headings and in the requisite detail. 



No. 1] FIRST STATE EXECUTIVE BUDGET 23 

On receipt of these reports, wherever we deemed hearings neces- 
sary for the proper information of the governor, we requested the 
necessary officials to come before us and bring whatever books or 
information we desired, and in certain instances we detailed the 
state auditor for certain information. On the other hand, all state 
institutions or departments desiring a hearing were given a full 
opportunity to be heard; likewise all persons interested in any 
appropriation or any proposed legislation requiring appropriations. 

We have heard a criticism that these hearings ought to be 
compulsory on the part of the governor wherever asked for by 
any department or by any person interested. I see no real objec- 
tion to this, although I am confident that such objection is only a 
critical one and is entirely unnecessary in procuring proper hear- 
ings by all persons interested. 

The governor, after proper hearings and proper investigation, 
fills in his own allowances after every proposed item of salary or 
expense for all the departments or state institutions. 

In Maryland the state has been appropriating money quite 
largely to what we call "state-aided" or benevolent associations 
or institutions. We have the Board of State Aid and Charities, 
whose duty it is carefully to examine each detail of these institu- 
tions and make a report to the governor with its recommenda- 
tions prior to the assembling of the legislature. Their report gives 
in detail the assets and liabilities of the institutions, as well as all 
details of their service. With this report before him the governor 
allowed each of the hospitals a per capita allowance for each free 
hospital day and other institutions in accordance with their free 
work done. 

Attached to each of these budgets was an itemized statement 
of the receipts and expenditures for 1917 and the estimated re- 
ceipts and expenditures for 1918, showing the surplus carried over 
from 1917 to 1918, and the estimated surplus to be carried over 
from 1918 to 1919. Likewise accompanying the budget was a de- 
tailed statement of the estimated revenues for the fiscal year 1919 
and a statement of the proposed expenditures as allowed by the 
governor, showing the surplus to be carried over from the fiscal 
year 1919 to the fiscal year 1920, provided the estimates of the 
receipts for the fiscal year as made by the governor should be 
correct, and the allowances as made by the governor in expendi- 
tures were not changed. There was also a statement showing the 



24 CONFERENCE ON WAR ECONOMY [Vol. VIII 

estimated receipts for 1920, and the governor's allowances in 
expenditures for the same year, showing the surplus which would 
be brought down if these estimates were correct and the allow- 
ances remained intact. By this plan, of course, there could be no 
deficiency if the estimates of receipts were correct, for in that 
case the surplus might be increased by the action of the legislature, 
but no deficit could occur. 

Now what are the defects of this plan? One of the particular 
criticisms I have to make is one not of the system, but of the past 
legislature. There were so many questions of a partisan character, 
so many questions of importance which were so hotly contested, 
that in neither the senate nor the house did the committee devote 
sufficient time in the consideration of the budget to act upon it 
properly or intelligently, particularly the Ways and Means Com- 
mittee of the house. What had taken the governor three months 
for preparation after an intimate acquaintance of four years, the 
Ways and Means Committee passed upon in practically two or 
three sittings, each of very short duration. The Finance Com- 
mittee of the senate approved the governor's budget appropriat- 
ing about $12,000,000 in to to, and the Ways and Means Com- 
mittee all except two or three items, the legislature passing the 
Budget Bill after striking out but one item of $2,000. The 
governor would naturally feel complimented that the legislative 
branch of the government cut down his appropriation by only 
$2,000 out of $12,000,000 appropriated, but as a matter of 
fact, the efficiency of the Executive Budget plan in large part 
depends upon an intelligent revision of the governor's allowances 
made by the legislature after a most careful and patient study and 
consideration of the different items of appropriation. Under our 
amendment the governor and all department heads are subject to 
the proper examination on all matters of appropriation, but when 
a legislature confines itself to a single item of appropriation as a 
subject of criticism it is not meeting the obligations imposed by the 
Budget Amendment. With us the result has been that the details 
of every department are open to the public. It remains in book 
form subject to scrutiny for future legislatures. The different 
departments get accustomed to asking for appropriations after a 
very careful and detailed estimate of their requirements, and they 
feel a greater responsibility in keeping within the budget allow- 
ances. 



No 1] FIRST STATE EXECUTIVE BUDGET 25 

We did not desire to take away every opportunity to meet un- 
foreseen contingencies, so that in our Budget Bills we have per- 
mitted the different department heads and institutions to have 
some flexibility in their expenditures by filing a different state- 
ment of proposed expenditures, which becomes effective upon the 
approval of the governor, but the sum total cannot be exceeded. 

The Budget Bill provides : 

That the items and amounts which hereinafter follow the sums appro- 
priated, and which are, respectively, entitled "Schedule," do not constitute 
appropriations, but represent the initial plan of distribution and appor- 
tionment of the appropriations to which they, respectively, refer. Each 
appropriation shall be paid out only in accordance with the schedule there- 
for, if any, unless such schedule be amended in the following manner : any 
department, board, commission or officer may at any time submit in writing 
to the governor an amended schedule for the distribution and apportion- 
ment of the appropriations made to it or him, or any unexpended balance 
thereof, different from the manner set forth in the schedule contained 
in this act. The governor may himself make such an amended schedule, if 
the same be necessary, with respect to the appropriations for the Execu- 
tive Department. If the governor shall make such an amended schedule 
with respect to the appropriations for the Executive Department or if he 
shall approve an amended schedule when submitted to him as aforesaid, 
then he shall transmit the same with his certificate of approval to the 
comptroller, and thereafter the appropriation, or the unexpended balance 
thereof, shall be paid out in accordance with such amended schedule. Any 
amended schedule, so submitted to the governor may be withdrawn and 
amended to meet any objections of the governor, and then resubmitted. 
Any such amended schedule may be again amended, at any time, in like 
manner and with like effect. All amendments and schedules thus made or 
approved by the governor shall be reported by him to the next session 
of the general assembly. 

The legislature of 1918 kept its own expenditures down to 
estimated expenditures and well within the appropriation of 1916, 
and no extra bills for the fiscal years 1919 and 1920 were passed. 
There was a total absence of lobbying in the interest of appro- 
priations or of personal solicitations by departments or institutions 
upon the members of the legislature. The state institutions and 
departments and the state-aided or benevolent institutions accepted 
the allowances of the governor without any protest. 

The chief difficulty we had in making up a budget in Maryland 
was that some of our departments, such as the Insurance Depart- 
ment, the State Accident Commission, the Conservation Commis- 
sion and the Automobile Commission, were accustomed to collect 



26 CONFERENCE ON WAR ECONOMY [Vol. VIII 

their own revenues and pay their own expenses and turn over 
balances to the treasurer. There could not be an effective budget 
unless all of the revenues were paid into the general treasury and 
all expenditures made therefrom, so it became necessary for legis- 
lation to be passed turning all the receipts into the general treas- 
ury, which was done. 

Another embarrassment, equally great to one kind of a budget 
as to another, is that some of our institutions, such as our insane 
asylums, not only get an appropriation from the state, but a pro- 
portional per patient appropriation from Baltimore city and from 
the different counties. In our budget in such cases we have fixed 
the salaries and expenses in detail to be allowed, and with their 
statement of the revenues from the counties and from other 
sources, such as their farms, the state has appropriated the differ- 
ence between such total and the total of the expenditures allowed 
for salaries and expenses. In my opinion it would be still better 
for these different revenues to be paid over to the state and for the 
entire appropriation to be paid direct from the treasury of the 
state. 

Furthermore, where a proper contingent fund is not placed at 
the disposal of the governor for proper investigations of the 
different institutions or departments, the necessary aid to the gov- 
ernor for assisting in the preparation of the budget should be 
provided. 

In our state the Board of State Aid and Charities is appointed 
by the governor and reports to him. It makes a very careful 
examination of all state-aided institutions and all state institutions. 
The state auditor's department is likewise available to the governor 
for any investigations. I can readily conceive, however, that if 
someone not well acquainted with the finances of the state and 
the workings of the departments should be elected governor, the 
burden of the executive would be a most difficult and troublesome 
one. After the first budget has been made the following budgets 
should not be so difficult, as the forms and other details of the 
departments are then so fully and completely disclosed, but the 
greatest difficulty which I conceive in the way of an Executive 
Budget is providing for any proposed new departments or com- 
missions, or any new projects, the wiping out of any departments 
or useless offices, or the consolidation of any two or more depart- 
ments. But considering the trend of modern politics, where the 



No. 1] FIRST STATE EXECUTIVE BUDGET 27 

governor is supposed to take the initiative and to be the real 
leader during his administration, I believe these difficulties can 
be met and overcome. At the session of 1918 wherever I advo- 
cated a new department I put the necessary appropriation in the 
Budget Bill, making the appropriation contingent upon the pass- 
age of the necessary legislation, and had introduced the necessary 
legislation as an administration measure. Where I was opposed 
to a department or office not called for by the constitution, but 
created by law, I put in the appropriation but in my message to the 
legislature I recommended the abolition of the office or department 
and the rejection of the appropriation. 

There are four kinds of budgets which have been advocated: 
A budget by the Board of Public Works, a budget by a Budget 
Commission, an Executive Budget and a Legislative Budget. "A 
budget by the Board of Public Works would have the disadvan- 
tage of dissipating personal responsibility, and would also not 
necessarily place party responsibility." I think the same objection 
would apply to a Budget Commission. Every plan I have so far 
seen for a Legislative Budget fails to meet the full requirements 
of a real budget in that it limits no responsibility, it carries with it 
no authority or prestige, it constitutes members of the legislature a 
permanent and paid commission to prepare and submit a financial 
plan to the legislature, with no restrictions, and allows the legisla- 
ture to act quite independently of the commission. It permits 
the legislature to select some of their own number to become a 
paid commission to prepare a budget plan, and if enacted into law, 
this plan would more surely perpetuate invisible and irresponsible 
government. If the only purpose of a Legislative Budget, a Com- 
mission Budget or any budget is simply to place certain informa- 
tion before a legislative body, I respectfully submit that in practice 
the desired ends will not be achieved. 

President Taft urged the Executive Budget in a special message 
to Congress, February 26, 1913. The New York Constitutional 
Convention endorsed it by a vote of 132 to 4. It has been advo- 
cated by the Chamber of Commerce of the United States, com- 
posed of the principal commercial bodies of the country. Mr. Fitz- 
gerald, chairman of the Committee on Appropriations of the House 
of Representatives, while once opposed, on June 26, 1915, went be- 
fore the New York Constitutional Convention at Albany and put 
himself on record as favoring the Executive Budget. The reasons 



28 CONFERENCE ON WAR ECONOMY [Vol. VIII 

given by him are so apt that I take the liberty of quoting him in 
part. He said: 

We ought to have some way in the system of our government to fix 
direct responsibility and you cannot fix responsibility if the power is too 
widely scattered. I would put it in the executive. I would make him 
responsible at the outset. Some persons object that we should not deprive 
the representatives of this right to loosen up the purse strings, but the 
universal condition in this country today is not what must safeguard the 
rights of the people to get money for things. The whole curse of our 
condition is that everybody is doing his utmost to get it and succeeds. 

Now if there were some wajr by which that could be stopped, it would 
do what is done in the government where they have a responsible govern- 
ment with a budget system. 

By an Executive Budget the whole plan is placed before the 
legislature and before the people of the state at an early date, by 
one who has had full opportunity for investigation and whose 
responsibility is in the open, while under the system heretofore 
prevailing in our state there is no plan; there is no well-defined 
program ; there is nothing to criticise, because these appropriation 
bills as heretofore made up do not take definite form, until too 
late for any intelligent or effective criticism. The public does not 
know their contents and few members do outside of one or two 
men who control the conduct of the bill. 

I know it has been said that the giving of such power to the 
governor "smacks of monarchy and makes him a dictator." In 
this country there need be no fear of that, no fear that the Execu- 
tive Budget will make him an invincible power. Such will not 
be the case. It can be a case of weakness rather than strength. 
With our amendment he has to come in the open forum and defend 
his recommendations. Everything is in the limelight and invisible 
or irresponsible government will become a thing of the past. There 
at least need be no fear in my own state of Maryland of any gov- 
ernor becoming a dictator or perpetuating himself in power, for 
no governor since the Civil War has ever been re-elected in our 
state. 

For the first time in our state the budget gives us a concrete 
statement of our fiscal condition and a concrete statement of all 
our revenues and expenditures in every detail. So far I have heard 
no complaint. The responsibility for expenditures is fully fixed. 
I am confident that the Executive Budget, in our state at least, 
has come to stay. 



RESPONSIBLE LEADERSHIP AND RESPONSIBLE 
CRITICISM 1 

BY FREDERICK CLEVELAND 
Secretary, Industrial Service and Equipment Company, Boston 

THE permanent good humanity will get from this war will 
not be a victory of democracy over Prussianism; but a 
victory of democracy over its own weakness. Prussian 
"Kultur," like the pneumo-coccus, is dangerous only because its 
victims are not fit. Democracy has been slack — we may even say 
slovenly — in its institutional habits. What gives to this war on 
Prussianism its greatest import is not alone the fact that we must 
at once so order our lives and adapt our institutions that we may 
be strong enough to resist attack, but that before we can become 
strong we must find out the cause of our weakness. 

In this quest we may easily be misled. For example : During 
the last three or four weeks the daily press has carried as news 
an attack made by ex-President Roosevelt on the Wilson adminis- 
tration. What is featured by Mr. Roosevelt is an alleged attempt 
on the part of President Wilson, through Mr. Burleson and oth- 
ers, to muzzle the press. These are some of the headlines : 

"T. R. Says Administration is Trying to Cover Its Own 
Weakness." 

"Wilson Stifles Honest Criticism." 

"Administration Has Used Its Power to Stifle Publicity." 

"Constitutional Right of Free Press Denied." 

In this colloquy two charges are made : First, that the adminis- 
tration has been weak — that there has been confusion and waste 
at a time when every ounce of man-power and material resource 
is needed to win the war. Second, that the President, under the 
claim of need to exercise military censorship, is using the same 
methods of repression and control over the press that is practiced 
by the Prussians. 

An appeal is made by Mr. Roosevelt to the underlying ideals 
of democracy. The assumption which lies back of his criticism 
is that our executive leadership shall be strong; that the govern- 

1 Read at the National Conference on War Economy, June 5, 1918. 



30 CONFERENCE ON WAR ECONOMY [Vol. VIII 

ment shall not be wasteful; that the executive and his cabinet 
shall be held to strict account before the public for his every act 
and proposal. But Mr. Roosevelt's criticism is personal. The idea 
conveyed to the public is that in his opinion such weakness and 
waste as has obtained in handling the work of this great war has 
been due to the personnel of those running the government, and 
that now it is trying to cover up its own shortcomings. 

The significant fact is this: that the one thing this "made-in- 
Germany" war is doing and will continue to do is to help us to 
see that in our institution building we have done violence to the 
very ideals to which Mr. Roosevelt appeals. 

To show that our essential weakness is institutional let us re- 
move ourselves from the realm of personal controversy. Let us 
go back to the Spanish- American War, when Mr. Roosevelt was 
in authority, first as Assistant Secretary of the Navy, later as a 
military commander giving orders at the front. At that time 
there was the same confusion and waste in raising and equipping 
a small army of 200,000 men that there has been during the last 
year in raising an army ten times as large. 

To appreciate what happened at that time, let us read from one 
of the most matter-of-fact, painstaking writers of history. Show- 
ing the embarrassment under which the McKinley administration 
labored, Sargent says: 

Nearly everything had to be created; clothing, tentage, wagons, ambu- 
lances, arms — in fact everything in the way of uniform and equipment — 
had to be contracted for or manufactured. . . . Wagons, ambulances and 
horses could not be purchased immediately in sufficient number; great 
difficulty was experienced in obtaining sufficient canvas to supply the army 
with tents; and no khaki cloth for uniforms was to be had in the United 
States. All this resulted, of course, in great inconvenience to the troops. 
The volunteers had to accept an inferior rifle with black powder ; a number 
of regiments could obtain no tents; the entire army was short of trans- 
portation; and many soldiers had to go to the tropics and fight in winter 
clothing. 

The confusion in leadership was appalling — and what is more, 
profiteering had a suggestion of venality that today is almost 
wholly lacking. There was more of the spirit of gang loyalty and 
less of the spirit of individual devotion to a great national cause. 
There was more of the confusion and waste and wantonness of 
the Civil War. But this confusion of leadership and administra- 



No. 1] LEADERSHIP AND CRITICISM 31 

tion was not to be charged to lack of quality in President 
McKinley — not even to Mark Hanna. 

Consider the kind of leadership we then had. On the supply 
side of the military establishment there were twelve different 
bureaus or offices, which had been created — not by the president 
as the responsible institutional military leader for his assistance 
and guidance — but established by Congress. Congress using its 
legislative powers had violated the spirit of the Constitution, 
which makes the president, as commander-in-chief of the army 
and navy, responsible to the people. And it set up against the 
president a bureaucratic feudalism; one lord was given jurisdic- 
tion over the buying and making of guns and ammunition — 
responsible to a committee of Congress ; another over buying or 
making clothing and equipage and providing quarters — respon- 
sible to a committee of Congress; another bought food — respon- 
sible to a committee of Congress; another bought and dispensed 
medicine — responsible to a committee of Congress; and so on 
through the entire list. 

These functionalized, bureaucratic, feudal lords did not look 
to their titular superior, the leader chosen by and responsible to 
the nation, for powers and policies. They looked to irresponsible 
committees. And because of the independence which was thus 
given, each chief built around himself a bureaucratic wall that 
even the constitutional chief executive himself could not get over 
or break through without wrecking limitations and provisos that 
had grown up in statute books as thick as moss on the shady side 
of a moat. In violation of the spirit of the Constitution, and of 
every ideal of democracy, Congress had taken upon itself control 
over each bureau of the administration. It had taken the initia- 
tive and the leadership that belonged to the executive in any 
scheme of responsible government and divided it among over a 
hundred different standing committees which, sitting behind closed 
doors, became both the real Congress and the real head of the 
administration. This was the institutional provision for leadership 
that existed at the time of the Spanish-American War. And it 
still existed when we entered into this war against Prussianism — 
not alone in the national government, but in most of our state gov- 
ernments as well. 

That we got out of the Spanish-American War without enor- 
mous sacrifice of blood and treasure, and loss of our national 



32 CONFERENCE ON WAR ECONOMY [Vol. VIII 

prestige, is due to the fact that a much less effective, moribund 
leadership had grown up in autocratic Spain. Consider what 
might have happened to Shafter's 17,000 men if the Spanish 
army of 196,000 men then in Cuba, more than twelve to one of 
the American forces landed, had been under the direction of a 
Foch, a Haig, or a Hindenburg. Shaf ter debarked his army with- 
out opposition, his only loss, caused by accident, being two men 
and a few mules, and the only difficulty experienced being his 
lack of debarkation facilities. So destitute was the army of 
means of landing that it was necessary to throw the mules and 
horses overboard and make them swim for shore. Although 
there had been ample time and opportunity for the Spanish gen- 
erals to have brought their army into action between the 22d 
of June and the 1st of July, Spanish records show that they had 
only 9,000 in the vicinity of Santiago. The Spanish soldier proved 
a good fighter, but he lacked leadership. If he had had good 
leadership it is thought that it would have taken not less than 
a half million men and possibly two years to reduce the Island 
of Cuba. Judged by results at the Battle of El Caney, this seems 
a conservative estimate. The only reason for our early success in 
the Spanish- American War was that the enemy was worse off for 
leadership than we were. Victory came to us by default. But we 
can look forward to no defaults under Prussian leadership. 

Let us follow the Spanish-American War experience a little 
further, for it is helpful. Let us follow it into the administration 
of Mr. Roosevelt, who saw and felt the lack of unity of directior 
and control. As illustrative, let us consider the futility of Mr. 
Roosevelt's effort to put unity of direction and control into the 
military establishment — due to a popular appreciation of the need. 
The enormous cost of the Cuban campaign, short though it was, 
the confusion and waste on every side, was the reason urged by 
Mr. Root in 1903 for organizing the General Staff. 

Yielding to this influence, an Act of Congress was placed on 
the statute books. This did not break down bureaucratic walls. 
Even with Mr. Roosevelt as constitutional commander-in-chief 
and Mr. Root as secretary of war, these old bureaucratic, feudal 
monopolies were protected by Congress as true representatives 
of our old hisses faire philosophy of government. These were 
so firmly intrenched that it took fifteen years and then several 
months of confusion in preparation for a war which left no doubt 



No. 1] LEADERSHIP AND CRITICISM 33 

in the minds of the people and their representatives that the mili- 
tary powers must be placed under strong, centralized leadership, 
before the General Staff was permitted to function effectively. 

Mr. Taft felt the same handicap, and through his entire ad- 
ministration he endeavored to have the principal of executive 
leadership accepted in matters of administration and finance — 
making the representative body a court of inquest, with powers 
to enforce its conclusions through its constitutional right to control 
the purse. The futility of this effort is shown in the treatment 
accorded to his recommendation of an executive budget pro- 
cedure. The idea was featured in the press and favored editor- 
ially. Only two newspapers opposed it. In a referendum taken 
by the Chamber of Commerce of the United States, only one 
trade body voted against it. But what was not seen or understood 
was that although it would require no constitutional change, as 
was set forth by the President in his message, it would require 
a complete change of procedure. Instead of having the machinery 
of Congress so geared up that the initiative in matters of admin- 
istration and finance could be divided among over a hundred 
irresponsible committees, it must come from a responsible execu- 
tive, the administration itself — leaving Congress free to review, 
criticize, discuss and finally to approve or disapprove the acts 
and proposals of those whose duty it was to render public service. 
Mr. Taft proposed that the president and the cabinet should take 
the initiative and then stand the test of open public questioning, 
criticism, and discussion before Congress, thereby making the 
president and his cabinet responsible for every measure which 
they considered essential to the adjustment of the working ma- 
chine. This done, Congress would be free to hold the executive 
to account. 

Since this was a frontal attack on the system of "government- 
by-congressional-committee," and the intrenched bureaucratic 
autocracy that had grown up under it (a system that had been 
inducted with the consent and approval of the people for the pur- 
pose of making the executive weak), Congress assumed that the 
country would not support the proposition to give the initiative 
to the cabinet, while Congress made it responsible through their 
power to control the purse. The Constitution admitted of such 
a practice. But opposed to it was more potent habit — a habit 
which could not be changed without a mandate from the people. 



34 CONFERENCE ON WAR ECONOMY [Vol. VIII 

The recommendations of President Taft for the introduction 
of an executive budget procedure were received by members of 
Congress with an air of patronizing superiority. When President 
Taft showed the seriousness of his purpose by issuing an order 
to the members of his cabinet to prepare such a budget, a clause 
was injected as a "rider" on a deferred appropriation bill passed 
in August 1912, the intention of which was to prohibit it. This 
"rider" was slipped into the bill in the committee room, and so 
deftly was it done that few members of Congress knew that they 
were voting for a proposal aimed to prevent the president from 
doing what he claimed to have a constitutional right to do. 

President Taft, however, did not falter. He issued a letter 
to Mr. McVeagh, as Secretary of the Treasury, stating that this 
rider could have no force as against the constitutional right of 
the president. Then he asked the cabinet to proceed to make a 
budget as requested. After various interferences and delays, due 
to the attitude taken by congressional committees, a budget was 
submitted. It was promptly consigned to a pigeon-hole in the 
thought that it would be lost sight of. It was published, however, 
at the expense of the president's appropriation, and has been at 
work every day since — out in the back country among the people. 
So firmly has it taken hold on the minds of thinking men that it 
promptly became an issue in every state in the Union, over forty 
of them having passed laws relating to it. Furthermore, in the 
last presidential campaign, it found expression in the platform 
of each of the leading political parties. 

In all these laws, however, this thought has failed to take hold : 
that a budget is only a procedure for holding an executive respon- 
sible by forcing him to come forward, tell what he has done and 
for what he asks support in the future ; that there can be no such 
thing as a budget so long as the initiative in matters of finance 
and administration is in one or more legislative committees. All 
that the people can hope to get is a committee report, after prac- 
tically all the decisions have been made, with little or no 
opportunity given for inquiry, criticism and discussion which will 
reach the people. What is called a "legislative budget," as has 
been shown in the state of New York, is simply a more orderly 
way of conducting "invisible government." 

President Taft strongly urged also that the executive be per- 
mitted so to organize the administrative offices and bureaus as to 



No. 1] LEADERSHIP AND CRITICISM 35 

enable him to discharge his responsibility to the public — to carry 
on the business of the government with a minimum of waste. 
But it was not until the life of the nation hung in the balance, and 
every human and material resource was plainly needful to turn 
the scales in its favor, that the idea that national economy and 
governmental efficiency were desirable began to be taken seriously. 

Mr. Wilson has done much to prepare the way for responsible 
leadership. He was one of the first American writers to point to 
the fact that practically all initiative had been taken over by 
standing committees of Congress, thereby leaving the executive 
a negative force. As governor of New Jersey he stood for execu- 
tive leadership. When he became president he upset the tradi- 
tions of a hundred years by appearing personally before Congress 
to discharge his constitutional duty of addressing them on the 
state of the Union. And when it became apparent that the com- 
mittee system must be abolished to enable the executive to give 
unity of direction to the many commissions, bureaus and offices 
which were required to co-operate in the prosecution of the war, 
he assumed personal responsibility for the Overman Bill giving 
to the president the power to reorganize the machinery of admin- 
istration. 

This power was finally given, as a war necessity. The bill was 
passed. But note the reservation. It was passed with an apology 
and a promise that after the war is over Congress will again take 
the initiative out of the hands of the executive and replace it 
in the hands of a hundred or more irresponsible committees of 
the representative branch. With all the appeals which have been 
made to the public, with all that has been said about the necessity 
for national economy, there are still Americans who insist that 
inefficiency and waste are the price to be paid for democracy — 
that we must choose between this and autocracy. If this con- 
clusion is accepted as a principle for future action, the days 01 
American democracy are numbered. That weakness and waste 
are not essentials of democracy, France has amply proved. France 
has proved that democracy can be strong. Great Britain has 
proved that popular control over political leadership is not incom- 
patible with strength. 

This brings us to our second point of institutional weakness. 
Strong, responsible leadership, as a means of developing an 
efficient public service, is not the only part of the mechanics of 



36 CONFERENCE ON WAR ECONOMY [Vol. VIII 

democracy to which attention should be given in this time of 
war stress. Wastefulness is not necessarily a fatal national vice. 
Except when confronted by threatened invasion, we may still be 
slothful and survive. We may even continue to feel superior about 
it so long as brave France and efficient Japan stand as buffers on 
either side of us against the spread of Prussian aggression by land, 
and Great Britain spreads its protecting wings over the seas, 
What must prove our fatal institutional weakness, unless it is 
overcome, is irresponsible criticism and publicity. 

When Congress gave over to its committees the initiative in 
matters of finance and administration, it unfitted itself to act as 
an independent forum. It introduced what has come to be known 
as invisible government — leaving to the people only irresponsible 
agencies through which to keep informed. Unless we provide 
the means whereby public opinion may have accurate knowledge 
of the facts and conditions which must be taken into account in 
determining whether one measure or another, or one leader or 
another, shall be supported; unless the electorate, as a jury before 
whom public administrations are tried, can act on evidence in- 
stead of mere allegation and persiflage, on material facts instead 
of demagogical appeals to prejudice and popular passion — our 
democracy will rest on no firmer a foundation than does the 
democracy of Russia. 

We do not impugn the high moral purpose of the Bolsheviki. 
We do question their intelligence. What has wrecked the ma- 
chinery of administration in the hands of Russian democracy 
was not its own weakness and wastefulness; nor was it lack of 
means for making its leadership responsible. Russian democracy 
failed because it failed to develop a procedure which would insure 
to the people and their leaders political justice, with the result 
that the enemies of the state, the enemies of democracy, by pro- 
cesses of cunning and cant, used the right of free speech and 
free press, so long denied, to poison the streams of public thought. 
It was irresponsible criticism and publicity that first undermined 
confidence in the public service — inciting acts of violence which 
operated to destroy the only instruments the people had, either to 
protect themselves against Prussianism or to conserve their own 
welfare. 

Democracy has stood for justice, a justice which rests its judg- 
ments on commonly accepted standards of morality. With a voice 



No. 1] LEADERSHIP AND CRITICISM 37 

of protest it has stood against the acts of autocracy when these 
acts have violated individual rights. It was in behalf of private 
justice that its voice was first heard. Five hundred years ago it 
was heard in England, and first King John and then King Henry 
was forced to sign a pact that "No free man shall be taken or 
imprisoned, or disseized of his freehold, or his liberties, or his 
free customs, or outlawed, or exiled, or anyways destroyed, nor 
will we go upon him nor will we send upon him, unless by the 
lawful judgment of his peers." The first charter of liberty in 
America, the old charter of 1641 of Massachusetts, provided that 
"no man's life shall be taken away, no man's honor or good name, 
shall be stayned" unless by due process of law. The Declaration of 
Independence gave as one of the reasons for revolution, "depriving 
us in many cases of the benefits of trial by jury." Approval of 
our federal Constitution was withheld until assurance was given 
that in a Bill of Rights would be added: 

In all criminal prosecutions the accused shall enjoy the right of a 
speedy and public trial by an impartial jury, and be informed of the 
nature and cause of the accusation; to have compulsory process for obtain- 
ing witnesses in his favor; and to have the assistance of counsel for his 
defense. 

Since the days of Magna Charta one of the most sacred things 
in the upbuilding of institutions for private justice has been a 
procedure which will insure to the defendant party and to the 
people, through a representative jury, that judgments rest on fact 
and not on assumption of power. The underlying purpose of 
creating a representative branch of the government was to give 
to the people and their servants the right of inquest and trial 
in all controversies having to do with matters of common welfare. 
But in our intense individualism we have overlooked that fact 
that we are quite as much interested in political justice as we are 
in private justice ; that democratic government must work through 
human agencies; that the life of the state depends on the powers 
of its leaders to organize ; and that powers of leaders depend on 
the continued confidence and good will in which the people hold 
them. 

When an accusation is made that a public officer has been 
inefficient in management of a public trust, and wasteful of public 
funds, this is quite as much to be considered a charge of "infa- 
mous" crime against democracy and against the state as infor- 
mation and complaint of injury to private property. The state 



38 CONFERENCE ON WAR ECONOMY [Vol. VIII 

is quite as much interested in any act or proposal of an authorized 
executive which bears on a matter of public policy as it is in the 
properties or interests of individuals. If a person accused of 
doing injury to life or property is entitled to the protection of 
"indictment by a grand jury," "the right of speedy and public 
trial by an impartial jury," "the right to be informed of the 
nature and cause of the accusation," "to have compulsory process 
in his favor," and "to have the assistance of counsel" before he 
can be marked by the public press for popular disfavor and penal 
discipline, even greater is the need for a procedure which will 
give to the people and their servants protection from false accu- 
sations of the designing and the selfish. 

It was the fair intent of our Constitution that the representa- 
tive branch should be a court of political justice. Massachusetts 
still calls her representative branch her general court. What we 
have lacked is not an agency of political justice, but a procedure 
which will keep the representative body as a grand jury from 
becoming a party in interest. By permitting Congress to take the 
initiative we have consented to making it unfit. We have deprived 
ourselves of the means of independent inquiry with the benefits 
of counsel. This, and a public consciousness that when accusa- 
tion is made against a public officer the life of the state and its 
material interests are being threatened, lie at the foundation of 
democratic control. Any charge made against persons chosen 
for positions of public trust is a matter which should be brought 
before a responsible tribunal. This is not a matter to be bandied 
about by scandal-mongers and irresponsible persons, and given 
currency under assumptions of constitutional guarantees of the 
right of "free speech and free press." 

When we have adequate means for inquiry, discussion, criti- 
cism and publicity in a duly constituted court of political inquest, 
before the bar of which those who are responsible for execu- 
tive leadership are required to come and give a full account of 
themselves; when this court has the power to enforce its judg- 
ments by control over the purse, subject only to an appeal to the 
electorate, we need not fear. Without such a court of political 
justice, "free speech" and "free press" may be quite as much a 
menace as a means of protecting our liberties. In fact, no one 
can be free who is at once ignorant and unjust. Under our pres- 
ent institutions we have no way of knowing whether our infor- 
mation comes from a "free press" or is only an "equity of re- 



No. 1] LEADERSHIP AND CRITICISM 39 

demption" that is speaking to us through editorial and news 
columns. 

To make this point quite clear, let us picture Mr. Wilson, 
through his cabinet, exercising the powers recently given 
under the Overman Act, reorganizing our national bureaucracy 
so that we may develop the full strength of our manhood and the 
most economic use of our great national resources for winning 
the war. This will necessarily take time, but he makes a vigorous 
beginning — and December next he comes before Congress for 
more money. 

Let us picture Congress doing its part as a court of inquest, a 
jury made up of representatives of the people. As such they 
organize, so that they may find out whether Mr. Wilson's cabinet 
is composed of men who are to be trusted as executives in this 
great emergency. They organize by appointing an auditor-gen- 
eral with an adequate critical staff, to review, approve or dis- 
approve each business act of the administration currently; and 
to report independently to Congress. They create a joint recess 
committee on finance and administration, whose membership is 
made up of the most competent critics in matters of this kind, 
and whose chairman is selected by those who do not agree with 
Mr. Wilson in matters of policy — the opposition. Senator 
Chamberlain heads the committee, which proceeds at once to 
prepare for the next session. Then Congress adopts a procedure 
which requires that the budget and all other measures proposed 
by the president and his cabinet shall first be taken up in a joint 
Committee of the Whole with the cabinet present to explain, 
discuss and defend. In order that there shall be a real trial, a 
real inquest, in order that fullest discussion and publicity be given 
under constitutional guarantees of "free speech" and "free press," 
they provide that the opposition may be permitted to select special 
counsel for leadership in the Committee of the Whole, in addition 
to the regular party whip. To persons selected as counsel are 
given such powers before the committee as will enable them to 
manage the case of the opposition against the administration be- 
fore the Committee of the Whole sitting as a jury. 

The cabinet has been preparing its case for weeks before Con- 
gress meets and the request for more funds is made. The mem- 
bers of the cabinet have kept in touch with what has been going 
on — having in mind that they will be called before the bar of the 
House. They have met together and in confidence decided what 



40 CONFERENCE ON WAR ECONOMY [Vol. VIII 

"the Administration" will stand for as a matter of public policy. 
They have organized their leadership, both in the cabinet and on 
the floor. They are ready to explain and defend every act and 
proposal. 

The opposition is also ready. The recess Committee on Finan- 
cial Administration under opposition leadership, with power to 
subpoena witnesses and documents, assisted by the auditor gen- 
eral's staff organization, has become familiar with every act, with 
each item in the bill of particulars before it, and with the 
methods used by the administration in estimating future needs. 
It has prepared a report on aircraft construction; on ship- 
building; on purchasing equipment and supplies. Opposition 
leaders have become familiar with this and with the report of the 
auditor general. 

Congress meets, and the opposition select Mr. Roosevelt, Mr. 
Taft and Mr. Hughes as special counsel. Two or three weeks are 
given to counsel for the opposition to study their case and arrange 
the strategy of the inquest, so as to bring out every fact and 
reason opposed to the plan of finance as proposed. They are also 
given a chance to request the preparation of any further state- 
ments of fact needed by the opposition. 

The day of trial comes; the press tables are crowded; the gal- 
leries are full ; Mr. McAdoo presents the application for funds in 
a budget speech. After he has finished, Mr. Roosevelt rises and 
interposes a demurrer — he moves "that the committee rise and 
report against the application of the administration for more 
funds." He argues "that this action be taken without going into 
their plans for the future in detail, for the reason that the cabinet 
cannot be trusted ; that it has been weak and wasteful in time of 
great national stress ; and that it is now trying to muzzle the press 
to cover up its mistakes of omission and commission." 

The effect of this procedure on the country is electric. In 
case the motion prevails, there will be no other recourse than for 
President Wilson to reorganize his cabinet — to appoint persons 
who together will command the support of a majority. The pro- 
ceedings of Congress at once have a news value as great as a 
cable from Pershing of a threatened break in the Western front; 
and the public is not reduced to reading the attacks of irrespon- 
sible persons on the administration. 

If, after the hearing on Mr. Roosevelt's motion, it is denied, 
then follows the review and consideration of the administration 



No. 1] LEADERSHIP AND CRITICISM 41 

program. The budget is taken up line by line, and an informal 
vote is taken on each department. This new organization and 
procedure puts an end to "invisible government." It puts an end 
to irresponsible criticism and publicity. It enables the executive 
to develop strong leadership, and through giving to the people 
and their representatives the benefit of inquest, criticism and de- 
cision by a responsible representative deliberative body it makes 
strong leadership subservient to the will of a majority. 

This is a popular rendition of what happened in 1866, when Mr. 
Gladstone, responsible for the administration of the affairs of 
Great Britain, with a view to keeping a majority back of him 
and protecting himself and his cabinet against irresponsible criti- 
cism, obtained the passage of a law by Parliament setting up just 
such an organization and procedure. His view was that the best 
way to meet opposition was to force it out into the open ; to give 
it the fullest opportunity to know the facts and to present them 
in a duly constituted forum of the people. 

Every country which has "responsible, visible" government has 
adopted a procedure for making its representative body a court 
of inquest for the people. We Americans first weakened our 
executive, then deprived ourselves of a means of responsible 
criticism. We violated the principle of separation of powers, by 
taking the initiative in matters of finance and in matters of admin- 
istration from the executive and turning it over to Congress. 
Congress and our state representative bodies, using the same 
method, have done the natural thing — instead of performing the 
functions of a court or inquest, they have applied "gag rule." 
We wittingly deprived our administrations of unity of plan and 
action. We unwittingly deprived ourselves of the means of 
responsible inquiry and criticism, thereby making the people dis- 
trustful of all our public servants — ready to listen to any person 
who has the wit to commercialize attacks made on those who 
have risen to positions of trust and whose names have news value. 
The more unscrupulous the person making the attack under our 
system, the greater the personal advantage. 

To resist Prussian aggression, democracy must become efficient. 
There is no way of making an inefficient democracy safe in the 
world. But democracy can neither be efficient, nor can it protect 
itself against the autocracy of a misguided public, so long as the 
good or bad opinion in which the government is held is formed by 
irresponsible publicity. 



EXECUTIVE LEADERSHIP IN A DEMOCRACY 1 

R. FULTON CUTTING 
Chairman, Board of Trustees, Bureau of Municipal Research 

ECONOMY is a rather dry subject in normal times. Budget 
making, accounting, business organization, does not appeal 
to the imagination of the electorate, but there are epochs in 
the country's history when they assume a supreme importance 
that gives them a dramatic interest. We are living in such an 
epoch today. The courage of our soldiers and the inventive 
genius of our scientists will not be adequate to win the war unless 
we are supported by financial ability and resourcefulness. The 
Federal Reserve Bank Act came just in time to make the great 
resources of this country available, but the employment of those 
resources and the conservation of them are still controlled by 
methods so archaic as to preclude any successful efforts at econ- 
omy and efficiency. 

There seems to be only one end to which all the ingenuity of 
our people today is given, and that is the increasing of the public 
revenue. We are forever seeking new expedients in taxation. 
We do not need more money so much as we need to use it aright. 
It was only a very short time ago that at an address in this city a 
representative of the national government is reported to have 
said, "We will tax the rich man more and more until he has very 
little left." That sort of shallow Bolshevist thinking is too cur- 
rent, and it will continue current until the intelligence of this 
great country comes to appreciate what a menace to democracy 
and civilization there is in financial recklessness. It may be true, 
of course, that the recklessness of the national government and 
of our governments all over, has been due to private improvidence. 
We have been a wasteful people, we have had money to burn and 
we have burned it, but we have now come face to face with a real- 
ization of the fact that the ultimate cost of this great war must be 
paid out of our private savings. We cannot go on placing our 
liberty loans and issuing city bonds in the hope that they will be 



introductory address as presiding officer at the National Conference 
on War Economy, June 5, 1918. 



No 1] LEADERSHIP IN A DEMOCRACY 43 

taken until we cut out both public and private waste. We are 
giving the very best we have in this great struggle for democracy, 
and we cannot afford to permit a spendthrift disposition of the re- 
sources upon which the future of the American people depends. 
There is no politics in this issue at all. The waste of public 
money is neither a Democratic nor a Republican peculiarity, its 
real sources lie deeper than that; it lies in the negligence that 
characterizes popular sovereignty, for the trouble is that our peo- 
ple pay no attention to administration after they have once elected 
a candidate for office. This sort of negligence has been a real 
misdemeanor in the past, but that misdemeanor will in these times 
of trial speedily become a felony if not corrected. 

Now we cannot load the responsibility for our fiscal misconduct 
upon the shoulders of officials. The fact is that if the public 
insist upon the officials using old-fashioned tools and archaic 
methods and worn-out machinery they cannot expect from them 
the best productivity. We need new machines as well as trained 
men. We have not in the past had so large a reservoir as we 
ought to have had for supplies of trained public officials, nor 
have our great institutions of learning risen to a realization of the 
fact that public service is a profession. It is true that the un- 
certain tenure of office has operated to discourage to some de- 
gree preparation for public service, but the merit system 
has in large measure corrected that, and the growing demand 
throughout the country for qualified men will correct it further. 
It is time that the great institutions of learning seize this oppor- 
tunity to measure up to their responsibility by graduating men 
equipped to make governmental administration scientific, practical 
and efficient. But however efficient an administrator may be he 
can always learn a good deal from the talents and the experience 
of his fellow citizens. In the past our people have been altogether 
too prone either to give to their administrators an irrational and 
often unmerited adulation, or an equally irrational and unmerited 
condemnation. The time has come when the citizen must learn 
to co-operate with his administrator, and to give whatever talent 
he possesses to making that administrator successful, no matter 
who he is or what his politics are. To this end Chambers of Com- 
merce, Boards of Trade and other civic agencies should regard it 
as part of their functions in representing citizenship to give to 



44 CONFERENCE ON WAR ECONOMY [Vol. VIII 

their local administration the value of the services of organized 
effort. , 

This is no time for us to criticize unless we criticize temper- 
ately, informedly and justly. It certainly is no time for us to 
condemn unless we find that officials are absolutely recalcitrant to 
every friendly offer of co-operation and absolutely deaf to every 
suggestion that may be courteously made. Our duty is to offer 
co-operation, and experience has shown to us that public officials 
are ready to welcome co-operation when it is tendered with an 
open hand, just as they are disposed to reject it when it is tendered 
with the mailed fist. It is the duty and the function of the citizen 
to be the co-operator with his administrator. The American elec- 
torate has grown into its adolescence, and it is about time that it 
should abandon the youthful practice of senseless mud slinging. 
Our campaigns, I trust, will be conducted hereafter upon grounds 
of policy and common sense, and not of personalities. What is 
needed more than anything else today, it seems to me, is a careful 
study by officials of the organization of government, a study con- 
ducted in the light of the experience of the best managed private 
corporations, for in the last fifteen or twenty years very great prog- 
ress has been made by them in the elimination of waste, and in 
getting every particle of value out of every dollar spent. 

Our governmental framework has been like that of a cot- 
tage erected for a family without any provision at all for an 
increase in the family's size, and to which had been added from 
time to time wings and stories and corridors and staircases, quite 
unrelated and inaccessible to one another; while what we want 
is a structure of the old colonial type, with its broad central hall 
and adjoining wings, every room accessible to the center, and with 
every facility for successful operation, so that the responsibility 
for cleanliness and order and efficiency and economy may be 
loaded right where it belongs, upon the shoulders of the house- 
keeper. 

In the last half century we have entered upon a new phase of 
civilization. The English publicists call it the New Democracy. 
We have commenced and are now going along to an unparalleled 
degree in using the resources of government and exercising its 
powers in an effort to solve the great problems that spring out of 
the disabilities of the poor. The community has begun to realize 
the responsibility it has for its poorer and weaker members. We 



No. 1] LEADERSHIP IN A DEMOCRACY 45 

are not socialists, we are simply passing from an age of academic 
individualism into an age of scientific and rational individualism. 
We are discovering the possibility of citizen co-operation through 
the agency of organization. But this policy is a costly policy in 
money. I have not the time nor the desire to reason out how suc- 
cessful may be the expenditure of money in matters of what they 
call beneficence, but it can be readily proved that almost every 
dollar that we have been spending in this city in the past has been 
of some practical benefit to the community economically. How- 
ever, it is a costly experiment, and only by a very rigid economy 
can this movement be accelerated, thereby aiding us to realize the 
idea of democracy. In this particular time when the pressure of 
war expenditure is so great, of course the tendency and the desire 
is to some degree to limit the ministry of mercy on the part of the 
city. I trust we shall never do anything of that kind, for after all 
the only way in which we can realize these ideals is by strict econ- 
omy. We can spend if we will only save. 

In the national government today we find the president of the 
United States summoning to his assistance, his councils, his ad- 
vice, the greatest men whom the nation has to offer. Perhaps that 
may be a prophecy, it may be an intimation of what will come 
after the war, when these men who have consumed so many years 
of their lives in their own industrial pursuits shall be called upon 
to advise, co-operate, as they ought to co-operate, with the elected 
authorities. If that is done, a new era will arise for us, because 
the large intelligence that this country is possessed of today is an 
immense reservoir of power and possibility if only drawn upon 
aright. 



EXECUTIVE RESPONSIBILITY AND A NATIONAL 

BUDGET 1 

NICHOLAS MURRAY BUTLER 

President of Columbia University 

THE business of national government has become so huge 
and so complex that the sharp separation of the execu- 
tive and the legislative powers to which we have been 
accustomed for one hundred and forty years is now distinctly 
disadvantageous. It brings in its train lack of coherence and of 
continuity in public policy ; it conceals from the people much that 
they should know; and it prevents effective and quick co-opera- 
tion between the Congress and the executive departments, both 
in times of emergency and in the conduct of the ordinary busi- 
ness of government. There is a way to overcome these embar- 
rassments and difficulties without in any way altering the form 
of our government or breaking down the wise safeguards which 
the Constitution contains. That is to provide by law, as may be 
done very simply, that the members of the cabinet shall be entitled 
to occupy seats on the floor of the Senate and House of Repre- 
sentatives, with the right to participate in debate on matters relat- 
ing to the business of their several departments, under such rules 
as the Senate and House respectively may prescribe. Such an 
act should further provide that the members of the cabinet must 
attend sessions of the Senate and House of Representatives at 
designated times, in order to give information asked by resolu- 
tion or to reply to questions which may be propounded to them 
under the rules of the Senate and the House of Representatives. 

Had such a provision been in force during the past generation, 
the nation would have been spared many an unhappy and mis- 
leading controversy. What has sometimes been made public only 
after the labor and cost of an elaborate investigation by com- 



iWith Dr. Butler's permission, this extract from an address on "A 
Program of Constructive Progress," delivered before the Commercial Club 
of St. Louis, Mo., Feb. 16, 1918, is included in this volume as his contri- 
bution to the Conference on War Economy. 



No. 1] THE EXECUTIVE AND A NATIONAL BUDGET 47 

mittee, might have been had without delay through the medium of 
questions put to a cabinet officer on the floor of the Senate or 
the House of Representatives. No feature of British parlia- 
mentary practice is more useful, or contributes more to a public 
understanding of what the executive is doing, than the proceed- 
ings at question-time in the Houes of Commons. A cabinet 
officer is in a much more dignified position if he is permitted to 
answer questions as to his official conduct and business on the 
floor of a legislative body and to make his reply part of the 
public record, than if he is interrogated in a committee room as 
an incident in some general inquiry. Perhaps no single step 
would do as much as this to restore public interest in Congres- 
sional debates, to promote administrative efficiency, and to bring 
about a just and proper intimacy between the legislative repre- 
sentatives of the people and the people's chief executive agents. 

This is not a new question, or one unsupported by high author- 
ity; but unfortunately it has never been pressed to a successful 
issue. The classic document on the subject is the report of a 
Select Committee submitted to the Senate of the United States 
on February 4, 1881. That report accompanied and discussed a 
bill containing the provisions just mentioned, and also outlined 
certain rules to be adopted by the Senate and House of Repre- 
sentatives in order to make the provisions of the proposed bill 
effective. This report was a unanimous one and was signed by 
senators belonging to each of the two great political parties. They 
are men whose names carry great weight. The signatures are 
those of Senators Pendleton of Ohio, Allison of Iowa, Voorhees 
of Indiana, Blaine of Maine, Butler of South Carolina, Ingalls 
of Kansas, Piatt of Connecticut, and Farley of California. 

The bill which those senators reported thirty-seven years ago 
should now be revived and enacted. Their report discussed in 
elaborate detail both the advantages of the proposed measure and 
the possible objections to it, including those which might be 
raised on constitutional grounds. That representative committee 
argued with convincing force that if, by a line of precedents 
since the organization of the government, the Congress has estab- 
lished its power to require the heads of departments to report 
to it directly, and also its power to admit persons to the floor of 
either House to address it, it would seem to be perfectly clear that 
the Congress may require the report to be made or the informa- 



48 CONFERENCE ON WAR ECONOMY [Vol. VIII 

tion to be given by the heads of departments on the floor of the 
Houses, publicly and orally. 

Were such a custom to be established an almost certain result 
would be the selection as heads of the great executive depart- 
ments of men of large ability and personal force, men able to 
explain and to defend their policies and measures before the 
Congress of the United States in the face of the whole country. 
It would also follow that the nation's legislature would be enabled 
to exercise a more intelligent and a more effective control over 
the executive departments than is now the case, as well as to 
render them more intelligent and more effective aid, in the form 
both of appropriations and of positive law. 

Nothing would appear to stand in the way of this most desirable 
advance except our national political inertia, which always serves 
as a powerful obstacle to proposed political reforms. At the 
present moment, when the nation is making an unprecedented 
effort and when Congress is providing for loans and for taxes 
that are colossal in amount, and when new problems of far-reach- 
ing importance are constantly arising, it would be an inestimable 
public advantage were such a relation between the heads of the 
executive departments and the two Houses of Congress alrea-dy 
established and in force. 

If there is to be better and closer co-operation between the 
executive and the legislative departments of the government, and 
if that co-operation is to result in the largest practicable public 
benefit, there should be no further delay in agreeing upon a 
national budget system. The arguments for a budget have been 
presented many times and they are as convincing as they are 
familiar. The platform of the Democratic party adopted at St. 
Louis in 1916 and the platform of the Republican party adopted at 
Chicago in the same year, both declare explicitly for a budget 
system. It is hard to see why there should be any time lost in 
introducing it into the operations of our national government in 
view of the great advantages that must certainly follow. 

In our form of government the Congress is made responsible 
for determining what work the government shall undertake, what 
form of executive organization shall be established to carry on 
this work, and what amount of public funds shall be provided in 
general and in detail for the operations of the government, as 
well as how those funds shall be raised. Since no money may 



No. 1] THE EXECUTIVE AND A NATIONAL BUDGET 49 

be drawn from the treasury but in consequence of appropriations 
made by law, a proper budget becomes the instrument of legis- 
lative control over the public administration. It is for Congress 
to determine what shall and what shall not be done, what shall 
and what shall not be undertaken. All experience proves that if 
what is to be done is decided in haphazard and desultory fashion, 
or in response to the uncoordinated recommendations of a hun- 
dred different administrative officers, there will be waste, dupli- 
cation of effort and ineffectiveness. To escape these and to enable 
the Congress and the country to hold the president and his admin- 
istration directly and fairly accountable for public policies, alike 
of omission and of commission, the president should himself be 
called upon to present each year to the House of Representatives 
a definite and well-analyzed estimate of those proposed expendi- 
tures which the administration wishes to support and to make its 
own. It should be within the power of Congress to reduce or 
to strike out any of the items of this proposed expenditure, but 
the Congress should voluntarily relinquish or hold in abeyance — 
as it might readily do by a joint rule — its constitutional power to 
increase or to add to these items. Moreover, the president should 
explicitly recommend the ways in which the moneys necessary to 
meet the proposed appropriations are to be raised. If the Con- 
gress accepts these recommendations, it makes the policy of the 
administration its own ; if it departs from them, then the Congress 
publicly and of record assumes the responsibility. This makes 
for publicity of action and for responsible democratic government. 
Everything of importance relating to a national budget is to 
be found in the report of the Commission on Economy and Effi- 
ciency presented to the Second Session of the Sixty-second 
Congress on June 27, 1912. Happenings since that time have 
only served to strengthen the arguments that were used in that 
report. If the Congress is really to understand what the presi- 
dent and his administration wish to do and how they wish to 
do it, and if the people are to be in a position to hold the presi- 
dent and the Congress responsible for their several acts and 
policies, there must be established a national budget prepared and 
recommended by the chief executive. Every year's delay in 
bringing this about increases governmental confusion, inefficiency 
and extravagance, and postpones the possibility of a simpler, a 
better-balanced and a more effective administration of the public 
business. 



VIRGINIA WAR ECONOMY AND BUDGET SYSTEM 1 

LEROY HODGES 

Aide-de-Camp and Secretary to the Governor of Virginia. 

While the war-making power is reserved to the federal government by 
the Constitution of the United States, the strength of the nation in times 
of war as well as in times of peace is in proportion to the economic 
strength of the component states, and no greater. In any discussion of 
national war economy it is therefore eminently fitting that the war-time 
economy of the individual states should be considered. In this era of 
unprecedented nationalization and centralization of federal authority, the 
source of this vast power should not be overlooked. 

We are told that the three factors which will win this war are money, 
men and food. The money which we are now spending in unlimited sums 
must be secured in the several states; our magnificent army of 5,000,000 
men must be recruited in the states ; and the food required to maintain our- 
selves and our Allies must be produced in the states. Having, under the 
stress of war, forged "the nation whole and complete," it is pertinent that 
we inquire just what the individual states have done to increase local admin- 
istrative efficiency and place their economic assets on a war basis. 

In Virginia sweeping administrative reforms have been undertaken in 
the state government in order to place public affairs on a basis of efficiency 
and economy to meet the demands of the war. A state council of defense, 
with very broad powers conferred by an act of the general assembly, has 
been appointed by the governor and placed in entire charge of all war 
activities in the state. All other state and local defense bodies are made 
subordinate to the Virginia Council of Defense, which, by law, is charged 
with the work of "co-ordinating the material, intellectual and moral forces 
of the commonwealth in the patriotic work of aiding the nation in its war 
for humanity." A most comprehensive workmen's compensation law also 
has been passed which creates a full-time salaried industrial commission 
with extensive powers. One of the most elaborate systems for the preven- 
tion and control of tuberculosis in any of the states has also been estab- 
lished, for the support of which the general assembly has levied a special 
tax and made large direct appropriations. Provision has also been made 
for the elimination of commercialized vice in the camp communities of 
Virginia, and the control of venereal diseases in the neighborhood of the 
military and naval cantonments is being handled as a medical rather than 
as a legal problem. The chief feature in Virginia's program of war econ- 
omy, however, is the modern executive state budget law recently enacted 
by the legislature, which will establish complete co-ordination of revenues 
and expenditures and insure greater executive supervision and control of 
all state affairs. 



'Discussion at the National Conference on War Economy, June 6, 1918. 



No. 1] WAR ECONOMY AND BUDGET SYSTEM 51 

After a careful study of ways and means to place the government of 
Virginia on an efficient "war" basis by the Virginia Commission on Econ- 
amy and Efficiency, the conclusion was reached that the one thing that 
more than anything else would place the state government on a more busi- 
ness-like basis and enable it to function more efficiently in meeting the 
demands of the war would be the introduction of a modern budget system. 
The commission accordingly drafted a budget law and embodied it in its 
report to the general assembly in January. With the approval and support 
of Governor Westmoreland Davis, who was inaugurated on February 1. 
this law was introduced as a bill in both houses of the assembly and 
promptly adopted. In the senate it received only two dissenting votes, and 
in the house not a single vote was cast against it. The act was approved 
by Governor Davis on February 19, 1918, and will take effect on June 21, 
1918. With the enactment of this law Virginia has cast off the shackles of 
the hopelessly unbusiness-like and inadequate method of handling its finan- 
cial affairs by the sixty-day legislative committee method, under which the 
same legislature that passed the new budget law made excess appropriations 
amounting to nearly a million dollars, unknown to any of its members. In 
fact, the general assembly of 1918 adjourned after adopting a general 
appropriation act authorizing expenditures during the 1918-1920 biennial 
period of more than a million and a quarter dollars in excess of the esti- 
mated revenues for the same period, which forced the governor to recall 
the assembly to reduce the appropriations within the revenues in order to 
avoid the deficit. 

Such a situation could not have arisen under the new budget system, for 
the law places ample safeguards over the treasury, and places definite 
responsibility on the governor, who is constituted "chief budget officer of 
the state," to frame an intelligent financial policy for the conduct of the 
state's business. The Virginia budget law requires that every two years all 
state agencies shall report their financial needs to the governor in itemized 
form before the first of November preceding the January meeting of the 
general assembly. These estimates must be filed with the governor in the 
form prescribed by him. For inclusion in the budget without revision by 
the governor, the auditor of public accounts is required to furnish him 
with an estimate of the financial needs of the general assembly, to be certi- 
fied and approved by the presiding officer of each house, for each year of 
the ensuing biennial period ; and a like estimate of the financial needs of the 
judiciary, as provided by law. These estimates from the auditor must be 
accompanied by a full and detailed explanation of all increases and 
decreases. At the time these estimates are filed with the governor, the 
auditor of public accounts is also required to furnish him with certain 
specified information regarding expenditures, revenues and cash balances, 
prepared in accordance with the budget classifications adopted by the 
executive. He must also file with the governor an itemized and complete 
financial balance sheet for the state at the close of the last preceding fiscal 
year, and such other statements as the governor shall request. 

In addition to the governor's constitutional authority to "require infor- 
mation in writing, under oath, from the officers of the executive depart- 



52 CONFERENCE ON WAR ECONOMY [Vol. VIII 

ment and superintendents of state institutions upon any subject relating to 
the duties of their respective offices and institutions ; and to inspect at any 
time their official books, accounts and vouchers," the budget law gives him 
authority to call for and have furnished to him promptly any information 
he may desire in relation to the affairs of any state agency. The budget 
law further provides that every two years the governor must make a careful 
survey of all state departments and institutions in order to possess a work- 
ing knowledge upon which to base his recommendations to the general 
assembly. He is empowered to employ competent assistants in conducting 
these biennial surveys. 

When these data have been received, the governor is required to hold 
public hearings, during the month of November preceding the meeting of 
the legislature, on all estimates to be included in the budget. Within five 
days after the beginning of the session of the general assembly, the gov- 
ernor must submit his budget, accompanied by specified supplementary 
financial statements, together with a general survey of the state's financial 
and natural resources and a review of the general economic, industrial and 
commercial conditions of the commonwealth. 

Obviously, the Virginia budget law provides adequate facilities for the 
governor to acquire definite information for the preparation of an intelli- 
gent work program. He can indicate to the general assembly exactly how 
and for what purpose the money asked for will be spent. Moreover, he is 
required to show the general assembly just how and from what sources he 
expects to secure the revenues required to carry out his program. 

It is mandatory that the governor shall accompany his budget estimates 
with a tentative bill to be known as "The Budget Bill." Within five days 
after he has submitted the budget the law requires that the standing com- 
mittees of the house and the senate in charge of appropriation measures 
shall sit jointly in open sessions to consider the governor's estimates. This 
provision makes it possible for any department or individual to appeal from 
the governor's allowances and secure a hearing before the legislative com- 
mittees. The governor, or his representative, and the governor-elect, how- 
ever, have the right to sit at these hearings and be heard on all matters 
coming before the joint committee. The committee can check the govern- 
or's estimates, if it so desires, by causing the attendance of department 
heads and other state officials. 

The constitutional rights and functional prerogatives of the legislative 
department are not infringed under the Virginia law, for "The General 
Assembly may increase or decrease items in the budget bill, as it may deem 
to be in the interests of greater economy and efficiency in the public service, 
but neither house shall consider further or special appropriations, except in 
case of an emergency, which fact shall be clearly stated in the bill therefor, 
until the budget bill shall have been finally acted upon by both houses. All 
bills introduced in either house, carrying appropriations, shall be itemized in 
accordance with the classifications used in the budget." As will be seen, 
this provision forces an early consideration of the administration's work 
program, directs attention to the financial needs of the state and to the 
condition of the treasury; and checks the flood of local and "political" 



No. 1] WAR ECONOMY AND BUDGET SYSTEM 53 

appropriation measures until after the general assembly has had an oppor- 
tunity properly to consider and provide for the constructive and vital busi- 
ness of the state. 

Aside from the powers conferred on the governor under the budget law, 
his constitutional veto power is unaffected. The Virginia constitution pro- 
vides that "The governor shall have the power to veto any particular item 
or items of an appropriation bill, but the veto shall not affect the item or 
items to which he does not object." If the governor does not approve of a 
bill, or "If he approves the general purpose of any bill, but disapproves any 
part or parts thereof, he may return it." In the first case, a two-thirds 
vote, if the number of members present include a majority of the members 
elected to that house, is required to pass a bill over the governor's objec- 
tions, or to re-insert an item in the appropriation bill after it has been 
vetoed by the governor. In the second case, a majority of the members 
present can refuse to change a bill in accordance with the governor's recom- 
mendations, whereupon the bill can be acted upon by the governor as if it 
were before him for the first time — i. e., he can either approve or veto the 
bill as he may desire. 

A close study of the budget laws in the several states clearly reveals the 
many advantages of the system created by the Virginia law. Our law 
provides a simple, direct and business-like method of handling the public 
affairs of the state in a conservative and constructive manner. While we 
have under way a number of administrative reforms made necessary by 
the war, our budget law forms the keystone in Virginia's program for 
war economy. 



EXECUTIVE LEADERSHIP IN A DEMOCRACY 
DISCUSSION 1 

Richard S. Childs, President, National Short Ballot Organization : Our 
legislative bodies in America, both national and state, are chaotic in 
their management compared with the parliamentary bodies of Europe, and 
it is because they lack anything which can properly be described as even 
approaching a ministry. We think of a ministry as something that concerns 
countries that have kings and crowns, but we should have in this country 
something comparable thereto in order to give a spinal column to our 
legislative efforts. 

Let us therefore formalize existing practice and procedure. At the 
present time, every governor, every president has his kitchen cabinet, 
composed of certain leaders of the legislative body in whom he has con- 
fidence. He deals with those men unofficially, almost in a secret manner, 
as if it were something of which to be ashamed. Through the medium 
of those trusted friends in the two houses he deals with his legislative 
body. Let us carry that existing and necessary practice a step further. 
Formalize it, set it up, with good reason behind it, as a thing to be recog- 
nized by all men, and call upon our chief executive to select from the two 
houses of the legislature a group of leaders who are able to work accepta- 
bly with him, and who are acceptable to the two houses of the legislature. 
Let him meet with this legislative cabinet once a week or as often as the 
work may require. Let him thus sit down with half a dozen members 
of the legislature and with them formulate the party policy for the 
session, set before the legislature its annual task and determine what bills 
shall be called administration bills with the prestige of the governor behind 
them. Let this legislative cabinet be the body to prepare and put before 
the legislature each year the "administration measures." Can you not see 
that to be a member of the governor's cabinet, this legislative cabinet, 
would give certain members of the legislature more authority on the 
floor and establish their leadership as being consistent with that of the 
governor? At present we have three leaderships: the governor with his 
messages and his power to get publicity; the leaders of the upper house; 
the leaders of the lower house — three separate leaderships. 

Let us bring them together into a committee, consolidate them, and all 
three forces will gain effectiveness. It is necessary, however, that the 
governor should select them, and not have the individual houses elect 
them, because it is absolutely necessary that such a body shall be har- 
monious, and as the governor is a fixed point, we have to let him pick 
the members of such a committee from the two houses. 

No legislative body has ever been a success without an arrangement 



1 Before the National Conference on War Economy, June 5, 1917. 



No. 1] LEADERSHIP IN A DEMOCRACY 55 

very much like that. With it, I believe we should soon get into a condi- 
tion where the main measures to be put through each year would be the 
product of that committee, aided as it would be by all the resources of the 
governor's administrative staff. 

Its legislation would be scientific, and against that legislation the bill 
that is proposed by the farmer from some remote village, written by a 
lawyer at home, amended and mutilated in some committee of the legisla- 
ture, and jammed through one house on sentiment regardless of facts and 
science, would have no chance whatever. More and more the leadership 
would follow the main track that is created, and the rank and file of the 
legislature would fall into the position for which they are ideally fitted, 
that of being pure representatives, passing the bills in review and acting on 
them in accordance with the views of those they represent. That is their 
function. Keep them to it, and the present legislators will make good for 
all of us. 

William P. Burr, Corporation Counsel, New York city 1 : Here in the 
City of New York we are confronted with extraordinary conditions with 
regard to the questions of the subway contracts. Here is a great work 
practically completed, and yet threatened with abandonment unless some 
relief can be extended to the men who have engaged to build this great 
work, in view of the conditions which did not confront them at the time 
when the contracts were made. The increased cost of materials, the higher 
rates for labor must all be adjusted, or these men may go into bankruptcy, 
and the great project fail. That is one of the questions which come up and 
must be solved. Can it be solved by allowing these men to abandon the 
contracts, or will it be solved by continuing the contracts with the city 
acting as the banker to advance the money before the payments are due 
in order to enable them to carry on this work? So also with the railways. 
Shall the rates of fare be increased? Should they be increased in view 
of the contractual relations which have existed for years and under which 
the franchises were originally obtained? Will the price of gas go up 
because of the higher price of the commodities that go into its making? 
Must the general consumers meet that condition and pay the higher rate, 
notwithstanding the fact that the rate is fixed by statute? Must these in- 
creased expenses be met by the companies or by the citizens ? 

All these complex municipal questions must be met by intelligently 
directed public action. This can only be effected if we are alive both to 
the needs of our own city and the magnitude of our national task. 



x In presenting the greetings of the City of New York to the National 
Conference on War Economy, June 5, 1918. 



THE BUDGET AS AN INSTRUMENT OF POLITICAL 

REFORM 1 

W. F. WILLOUGHBY 
Director, Institute for Government Research 

THE first step toward the accomplishment of any object, 
or the solution of any problem, is to secure a clear idea 
of the precise nature of the object sought, or the terms 
of the problem to be met. It is a remarkable fact that, great as is 
the attention which has been given during recent years to the 
subject of budgetary reform in the United States, only slowly has 
the full significance of this reform, or of the steps necessary for 
its complete accomplishment, been appreciated, even by those who 
have been actively promoting it. 

At first, the adoption of a budgetary system was looked upon 
as but an improved procedure in the raising of revenue and the 
voting of funds for the support of the government and its various 
activities. The more this proposed reform has been studied, how- 
ever, the more has its support become apparent. It is now seen 
that, if fully adopted, it will go a long way toward the removal 
of many of the most serious defects in our governmental machin- 
ery as at present constituted and operated, and will, therefore, 
profoundly affect our whole political system. 

The time has fortunately passed when our system of govern- 
ment is looked upon as representing the last word in political 
organization. Though we do not question the validity of the 
fundamental principle of popular government upon which our 
political system rests, it is recognized that, notwithstanding more 
than a century of experience, many of the problems of making 
this type of government efficient still remain to be solved. Among 
these problems first place may be given to the following : the per- 
fection of means through which popular control over the conduct 
of governmental affairs may be made effective ; the more satisfac- 
tory determination of the functions of our legislative bodies in 
respect to the direction and control of administrative affairs; the 



1 Read at the National Conference on War Economy, June 6, 1918. 



No. 1] THE BUDGET AND POLITICAL REFORM 57 

similar determination upon a more satisfactory basis of the func- 
tion of our chief executive in administrative matters; and, as a 
necessary collateral problem to the last two, the determination of 
the relations that should exist between the chief executive and 
the legislature, on the one hand, and subordinate administrative 
officers on the other, in respect to this branch of government. 

These problems have to do with those features of our govern- 
ment which, by almost common consent, are the least satisfactory 
of our political institutions, are primarily responsible for the fail- 
ure of our government to give satisfactory results in practice; 
and, what is of direct concern to us here, are such as the establish- 
ment of a proper budgetary system, more than any other single 
device, will tend to solve. 

It is hardly necessary to point out that the popular will cannot 
be intelligently formulated nor expressed unless the public has 
adequate means for knowing currently how governmental affairs 
have been conducted in the past, what are present conditions, and 
what program for work in the future is under consideration. Of 
all means for meeting this requirement none approaches a prop- 
erly prepared budget in completeness and effectiveness. It at 
once serves to make known past operations, present conditions 
and future proposals; definitely locates responsibility; and fur- 
nishes means of control. Too much emphasis therefore cannot 
be placed upon the budget as an instrument through which real 
democracy may be achieved. 

Regarding the function of the legislature in respect to conduct 
of administrative affairs, the conviction has been steadily grow- 
ing that we have erred in making our legislative bodies boards of 
directors to concern themselves with the details of the activities, 
organization and methods of business of administrative service. 
The true function of the legislature should be to act as an organ 
of public opinion in the larger sense, and as the medium through 
which those concerned with the actual administration of affairs 
should be supervised, controlled and held to a rigid accountability 
for the manner in which they discharge their duties. 

John Stuart Mill in his Essay on Representative Government, 
published in 1861, has a remarkable chapter entitled, "Of the 
Proper Functions of Representative Bodies." After pointing 
out that there is a radical distinction between controlling the 
business of government and actually doing it, and that the latter is 



58 CONFERENCE ON WAR ECONOMY [Vol. VIIL 

a task which no numerous assembly should attempt to perform, 
Mill goes on to say that "it is equally true . . . that a numerous 
assembly is as little fitted for the direct business of legislation as 
for that of administration." 

"The proper duty of a representative assembly in regard to 
matters of administration," he continues, "is not to decide them 
by its own vote, but to take care that the persons who have to 
decide them shall be the proper persons." And again he says : 

Instead of the function of governing, which it is radically unfit for, the 
proper office of a representative assembly is to watch and control the Gov- 
ernment ; to throw the light of publicity on its acts ; to compel a full expo- 
sition and justification of all of them which any one considers question- 
able ; to censure them if found condemnable, and, if the men who compose 
the Government abuse their trust, or fulfil it in a manner which conflicts 
with the deliberate sense of the nation, to expel them from office, and 

either expressly or virtually appoint their successors This 

is surely ample power, and security enough for the liberty of a nation. 
. . . In addition to this, the Parliament has an office, not inferior to 
this in importance; to be at once the Nation's Committee of Grievances 
and the Congress of Opinions; an arena in which not only the general 
opinion of the Nation, but that of every section of it, and as far as possi- 
ble, of every eminent individual whom it contains, can produce itself in 

full sight and challenge discussion Nothing but the restriction 

of the function of representative bodies within these rational limits will 
enable the benefits of popular control to be enjoyed in conjunction with 
the no less important requisites (growing ever more important as human 
affairs increase in scale and in complexity) of skilled legislation and ad- 
ministration. 1 

Nowhere, so far as the writer is aware, has this vital question 
of the function of the legislative chambers in relation to admin- 
istration been more clearly and accurately stated. In it is to be 
found the explanation why the British parliamentary system, 
which is conducted strictly on the principles there laid down, 
works so smoothly and efficiently in respect to the formulation and 
execution of administrative programs, and why our political sys- 
tem, in which these principles do not find expression, gives quite 
contrary results. 

It is one thing, however, to see a defect and quite another to 



a For this statement of Mill's consideration of the proper function of, 
legislative bodies, the author is indebted to an unpublished manuscript by 
his brother, W. W. Willoughby. 



No. 1] THE BUDGET AND POLITICAL REFORM 59 

determine the action that should be taken to remove it. It is at 
this point that the matter of budgetary reform enters. Manifestly 
the introduction of a budget system constitutes the most effective 
means of giving our legislative bodies their true position and 
function in our political system. In the executive is primarily 
vested the responsibility for the formulation of a work program 
and the determination of the agencies through which it is to be 
put into effect. The legislature will restrict its action to that of 
general direction, supervision and control. 

Closely connected with this question of the re-determination of 
the function of the legislature in respect to the administration 
is that of the re-determination of the functions of the chief execu- 
tive in this respect. In the organization of our governments, 
national and state, care was taken to make it clear that tne presi- 
dent and the governors should in all cases be vested with the 
executive power. This term "executive power" was not deemed, 
however, to be synonymous with, or even to include, administra- 
tive power. The chief executive was not made the administrator- 
in-chief of the government. This failure to make the president 
and the governor the head of the administration is intelligible 
when we appreciate that at that time the duties of government 
were almost wholly confined to what are known as the essential 
functions of government — that is, the enactment and enforcement 
of law, the maintenance of order, the conduct of foreign relations 
etc. Only to a comparatively slight extent did they, strictly speak- 
ing, perform administrative duties. There was consequently little 
apparent need for a general business manager who should have 
immediate responsibility for, and direct supervision over, the con- 
duct of administrative affairs. 

Conditions at the present time are radically different. Both our 
national and state governments are engaged in administrative 
undertakings of great importance and variety. With this change 
in the character of their work has come the imperative necessity, 
if governmental affairs are to be efficiently conducted, for the 
development of an office of general administration corresponding 
to that of general manager in a business corporation. There is 
but one way by which this can be achieved. The chief executive 



60 CONFERENCE ON WAR ECONOMY [Vol. VIII 

must be definitely given the status and powers of administrator-in- 
chief. 

Probably the greatest single defect in state governments as they 

now exist is their failure to provide for this feature. The gov- 
ernor, though designated as cnief executive, has been given a posi- 
tion, as it were, outside of the administration. He has little or no 
direct authority over the conduct of affairs in the several state 
services and institutions. Only in exceptional cases does he enjoy 
the appointment of the heads of important administrative services, 
or the power effectively to control their conduct. For the most 
part these men hold office through election by the people, or by 
appointment by the legislature. In general the principle followed 
has been that the line of authority and responsibility runs directly 
to the people or the legislature. 

This feature of our state governments has the most direct bear- 
ing upon the problem- of a budget which we are considering. The 
significant point is that it is impossible to establish an effective 
budgetary system until this feature of our government is cor- 
rected. As long as the governor stands outside of the administra- 
tive branch, and has no direct responsibility for the conduct of 
administrative affairs, and no adequate powers over administra- 
tive officers, he cannot formulate a budget that will have the char- 
acter or carry the weight that it should. Such a document will 
not be a financial and work program emanating from a responsi- 
ble administrator-in-chief. It will at best be but a compilation 
and revision of programs prepared by others, made by an officer 
standing outside of the fields of administration, and not directly 
in control of, or responsible for, the manner in which administra- 
tive affairs are conducted. 

It will be seen from the foregoing that this problem of the estab- 
lishment of a budgetary system is intimately tied up with the whole 
great question of the reform of the administrative branch of our 
state governments. On the one hand, every step toward the 
establishment of an integrated administrative system means laying 
the essential basis upon which a scientific budgetary system rests. 
Such a system is one where all the administrative services are 
knit together as integral parts of one piece of administrative 
machinery, at the head of which stands the governor as general 



No. 1] THE BUDGET AND POLITICAL REFORM 61 

manager, with adequate authority in respect to the appointment, 
removal, direction, supervision and control over all administra- 
tive officers. On the other hand, every step toward vesting in the 
governor responsibility for a budget tends just so much to accen- 
tuate his administrative responsibilities and to establish him in the 
position of head of the administration. Even though his constitu- 
tional and statutory powers in respect to the appointment and 
control of administrative officers may not be enlarged, the fact that 
he has to review the latter's requests for funds and has the re- 
sponsibility of definitely stating what, in his opinion, should be 
the work program for the year or years to be financed, give to him 
a moral and actual power over administrative affairs that exercise 
will tend constantly to strengthen. 

It is evident that making the governor head of the administra- 
tion, or even conferring upon him the duty of formulating and 
submitting a budget, without changing his general powers in 
respect to the selection and control of other administrative officers, 
will enormously increase his effective powers and responsibilities. 
It is a canon of administrative science that, when discre- 
tionary power and authority are increased, a corresponding in- 
crease should be made in the means of controlling the manner in 
which these augmented powers are exercised. If legislatures are 
to surrender to the executive increased power in respect to the 
conduct of administrative affairs, they must strengthen the means 
by which they may assure themselves that these powers are prop- 
erly exercised. 

There are two methods by which this superior direction, super- 
vision and control may be exerted — by specification in advance, or 
by providing that full information shall be currently available 
regarding the manner in which the delegated authority is being 
exercised. Legislatures are being asked to give up the first 
method of control. If they do so, it is imperative that the condi- 
tions stated in the second alternative shall be met. In meeting 
this requirement lies one of the great merits of a proper budget 
system. A budget is much more than an estimate of financial 
needs and means of meeting such needs. It is, or should be, at 
once a report, an estimate and a proposal. It is the document 
through which the chief executive as the authority responsible for 
the actual conduct of governmental affairs, comes before the fund- 
raising and granting authority and makes full report regarding the 



62 CONFERENCE ON WAR ECONOMY [Vol. VIII 

manner in which he and his subordinates have administered affairs 
during the last completed fiscal period, the present condition of the 
public treasury and, on the basis of such showing, sets forth his 
program of work for the period to come, and the manner in which 
he proposes that such work shall be financed. 

It is of the essence of a proper budget system that this docu- 
ment shall be so compiled, and so supported by supplementary 
analyses and data, that the legislature shall be enabled readily 
and accurately to pass upon how the governor and his subordi- 
nates have discharged the duties of their stewardship. It thus 
furnishes them an instrument of control which under present 
conditions is largely lacking. 

It is not enough, however, that the legislature shall be thus 
provided with an instrument through which it can determine how 
their administrative agents are performing their duties. That 
body must provide itself with means through which it can effec- 
tively make use of this instrument. To do this three things are 
necessary. 

First, the legislature must provide itself with an officer whose 
duty it is to audit all the accounts of the government and report 
his findings to it. This feature of having the audit of accounts 
performed by an officer of the legislature rather than of the 
executive branch is, it is recognized, one that is foreign to Amer- 
ican practice. Consideration will show, however, that it is logical 
and essential if the legislature is properly to perform its function 
as a general controlling agent. 

Second, the legislature must provide itself with a committee 
on accounts similar to the select committee on accounts of the 
British House of Commons, whose duty it shall be to receive the 
report of the auditor, examine it and bring to the attention of 
the legislature for appropriate action all cases where the adminis- 
trative officers have not rigidly complied with both the spirit and 
letter of the law or have seriously misused their discretionary 
authority. Unless provision is made for such a body and pro- 
cedure, there is danger that due consideration will not be given 
to the auditor's report, and required corrective action will not be 
taken. This committee should be as nearly as possible non-parti- 
san in its make-up and action. The chairman of the British com- 
mittee is always selected from the opposition and the convention 



No. 1] THE BUDGET AND POLITICAL REFORM 63 

is firmly established that all party considerations shall be ban- 
ished from its proceedings. 

Finally, the legislature must make proper provision for the 
consideration of the budget and for taking the action required 
upon its proposals. In respect to this, the most important con- 
sideration is that responsibility for the consideration of the budget 
shall be concentrated in the hands of a single committee. Failure 
to do this will destroy the unity of the budget and thus defeat 
one of the main purposes of a budgetary system. 

This question of budgetary reform is intimately connected with 
many of the political reforms upon which we place especial stress. 
For years we have appreciated the need for such fundamental 
reforms, but have been more or less doubtful as to how they 
should be brought about. In the development of the demand for 
the adoption of a budget we have at last devised such a means. 
The thesis that we have sought to establish is that the adoption of 
a scientific budget system by each of our commonwealths repre- 
sents not only a great reform in itself, but will powerfully con- 
tribute to the accomplishment of those great measures of political 
reform which are essential if we are to demonstrate to ourselves 
and to the world at large that efficient administration can be 
secured under a popular government. 



THE DEVELOPMENT OF THE BUDGET IN ILLINOIS 1 

OMAR H. WRIGHT 
Director of Finance of Illinois 

THE first concerted action taken in furtherance of the 
establishment of a budget for Illinois is evidenced by the 
enactment of a law by the general assembly at its regular 
session in 1913, the measure taking effect on July 1 of that year. 
This act created a joint Legislative Reference Bureau to be com- 
posed of the governor, and the chairmen of the Committees on 
Appropriations and Judiciary of the senate and the house of 
representatives. 

Quoting from this law, one of the duties of the bureau was 
To cause to be prepared, printed and distributed for the use of the 
members of the General Assembly, a detailed budget of the appropriations 
which the officers of the several departments of the State government 
report to it are required for their several departments for the biennium 
for which appropriations are to be made by the next General Assembly, 
together with a comparative statement of the sums appropriated by the 
preceding General Assembly for the same purposes. 

Under this section, the Legislative Reference Bureau did prepare 
and publish such a so-called budget, or rather books of estimates, 
which proved unsatisfactory on account of the lack of executive 
control, a multiplicity of detail, and the failure to provide the 
proper authority for amendment or revision. 

Subsequently, the fiftieth general assembly enacted a law known 
as the Civil Administrative Code, effective July 1, 1917, the 
department of finance being one of the nine new departments 
created by this law. This department is charged with the respon- 
sibility of preparing for presentation to the governor, for him to 
submit to the general assembly, the first state budget. This is one 
of the department's most important functions. 

It is doubtful if any one subject in state government has 
received more attention during the past ten years than the ques- 
tion of directing the expenditures of public moneys through the 
medium of an intelligent budgetary program. So far, little real 



1 Read at the National Conference on War Economy, June 6, 1918. 



No. 1] BUDGET DEVELOPMENT IN ILLINOIS 65 

accomplishment has been registered. Expenditures for public 
purposes of cities, counties and states have increased approxi- 
mately 100 per cent in the past decade. Various and intricate 
methods of indirect taxation have been developed in order to meet 
this increased outgo. In the final analysis, however, the individual 
pays the bill, and the larger part of the increase has been raised 
by the levying of additional direct taxes. 

The situation in Illinois has, perhaps, been no worse than that 
of other states. It is doubtful if it has been better. During the 
past few years, states generally have made a more definite effort 
to locate and solve some of these known problems. This effort 
has resulted in the appointment of many economy and efficiency 
commissions. Such a commission was appointed in Illinois and 
made an excellent report to the general assembly on December 1, 
1914. Practically all of these commissions have recommended in 
their reports the adoption of a budget program sufficiently com- 
prehensive to cover both the raising of sufficient revenue and its 
proper expenditure. 

The method developed in Illinois to make revenues equal ex- 
penditures has been to fix a state tax levy after the adjournment 
of the general assembly, sufficient to meet the amounts appro- 
priated, taking into consideration the income from indirect taxa- 
tion. By the rate so fixed, the extravagance or economy of the 
administration has been, to some extent, judged. 

Among the constitutional provisions bearing on this subject are 
the following: 

1. The supreme executive power shall be vested in the Governor 

2. The Governor shall, at the commencement of each session, , 

present estimates of the amount of money required to be raised by taxation 
for all purposes. 

3. No money shall be drawn from the Treasury except in pursuance of 
an appropriation made by law. 

4. Every bill passed by the General Assembly shall, before it becomes a 
law, be presented to the Governor. 

5. Bills making appropriations of moneys out of the Treasury shall specify 
the objects and purposes for which the same are made, and appropriate to 
them respectively their several amounts in distinct items and sections, and 
if the Governor shall not approve any one or more of the items or sections 
contained in any bill, but shall approve the residue thereof, it shall become 
a law as to the residue, in like manner as if he had signed it. 

6. All appropriations, general or special, requiring money to be paid out 
of the State Treasury from funds belonging to the State, shall end with 
the first fiscal quarter after the adjournment of the next regular session. 



66 CONFERENCE ON WAR ECONOMY [Vol. VIII 

The Civil Administrative Code prescribes the duties of the 
director of finance in connection with the state budget as follows : 

Section 37. In the preparation of a State budget, the director of finance 
shall, not later than the fifteenth day of September in the year preceding 
the convening of the General Assembly, distribute to all departments and 
to all offices and institutions of the State government (including the elec- 
tive officers in the executive department and including the University of 
Illinois and the judicial department) the proper blanks necessary to the 
preparation of budget estimates, which blanks shall be in such form as 
shall be prescribed by the director of finance, to procure, among other 
things, information as to the revenues and expenditures for the two preced- 
ing fiscal years, the appropriations made by the previous General Assembly, 
the. expenditures therefrom, the encumbrances thereon, and the amounts 
unencumbered and unexpended, an estimate of the revenues and expendi- 
tures of the current fiscal year, and an estimate of the revenues and 
amounts needed for the respective departments and offices for the two 
years next succeeding beginning at the expiration of the first fiscal quarter 
after the adjournment of the General Assembly. Each department, office 
and institution (including the elective officers in the executive and judicial 
departments and including the University of Illinois) shall, not later than 
the first day of November, file in the office of the director of finance its 
estimates of receipts and expenditures for the succeeding biennium. Such 
estimates shall be accompanied by a statement in writing giving facts and 
explanation of reasons for each item of expenditure requested. The 
director of finance may, in his discretion, make further inquiries and 
investigations as to any item desired. He may approve, disapprove or alter 
the estimates. He shall, on or before the first day of January preceding 
the convening of the General Assembly, submit to the Governor in writing 
his estimates of revenues and appropriations for the next succeeding bien- 
nium. 

Section 38. The Governor shall as soon as possible and not later than 
four weeks after the organization of the General Assembly submit a State 
budget, embracing therein the amounts recommended by him to be appro- 
priated to the respective departments, offices and institutions, and for all 
other public purposes, the estimated revenues from taxation, the estimated 
revenues from sources other than taxation, and an estimate of the amount 
required to be raised by taxation. Together with such budget, the Gov- 
ernor shall transmit the estimates of receipts and expenditures, as received 
by the director of finance, of the elective officers in the executive and 
judicial departments and of the University of Illinois. 

The department of finance, by reason of its authority to audit 
vouchers, examine accounts and require reports, will be advised 
as to the character and amount of the expenditures made by the 
several departments during the present biennium. It is compiling 
tabulations and a detailed analysis of such expenditures, during 
the year ending June 30, 1918, for use in checking up and com- 



No. 1] BUDGET DEVELOPMENT IN ILLINOIS 67 

paring the requests for future appropriations, which will be made 
by the various activities in the state. However, irrespective of 
how complete may be the record of past expenditures, or how 
certain are the present needs, existing war conditions make intelli- 
gent budget-making difficult. Retrenchment and economy may 
curtail outgo in some avenues of state expenditure, but with over 
27,000 insane, feeble-minded and incarcerated people in Illinois, 
all to be humanely cared for, retrenchment can go only so far. At 
the same time, because of the present abnormal business situation, 
the importance of careful budgetary procedure is greatly enhanced. 
The appropriations made in Illinois by the last general assem- 
bly for the biennium beginning July 1, 1917, total approximately 
$50,650,000, as follows : 

Charitable and penal institutions $15,325,000 

University of Illinois and state normal schools 6,706,000 

State school fund 8,114,000 

Judiciary 1,593,000 

Legislative 1,005,000 

Defensive 2,501,000 

Highway building and maintenance 2,526,000 

General administrative 12,880,000 

Of the total amount appropriated, approximately 30 per cent is 
for salaries and wages. Our salary and wage problem in Illinois, 
as well as in the country generally, calls for serious consideration 
and study. The department of finance plans to submit to the 
governor, as part of its budgetary program, a recommendation for 
a classification and standardization of present salary schedules. 
The widely existing lack of uniformity in the amount of salary 
paid for the same class of work has caused endless annoyance and 
has often crippled efficiency in the different departments. As an 
example, salaries paid accountants range from $1,500 to $6,000 
per annum. The same wide variation exists throughout the dif- 
ferent activities in the state. 

The value of state-owned buildings in Illinois is approximately 
$25,000,000. Erection of these buildings began in 1845 and has 
continued intermittently since that time without any regularly 
ordered building program. Appropriations, covering building 
needs, have of necessity been made in a more or less haphazard 
manner. The department of finance, as part of its budget pro- 



68 CONFERENCE ON WAR ECONOMY [Vol. VIII 

gram, is now engaged in a detailed survey of all the buildings at 
state institutions. Reports to be submitted will show date of 
erection, size, number of stories, kind of material, present condi- 
tion, and a detailed statement of repair needs. In no other way- 
can building appropriation requests be intelligently determined 
upon. 

Heretofore, the initiative in appropriations has been largely with 
the legislature. Without the necessary knowledge as to existing 
conditions and the needs of the various expending agencies, no 
well ordered method of procedure has been possible. Large lump- 
sum appropriations have been made in some instances, while the 
most minute detail has been followed in others. Appropriation 
bills have frequently been held up until the closing days of the 
legislature, and then rushed through with little or no opportunity 
for careful consideration. 

The present budget law in Illinois provides for the submission 
of the executive budget to the legislature soon after it convenes. 
No reference is made as to procedure. The budget can be referred 
to regular committees or considered by the legislative bodies sitting 
as a committee of the whole. The general assembly has the 
power to revise, amend, decrease, increase or disregard the gov- 
ernor's recommendations entirely, subject, however, to the gov- 
ernor's veto. While the possibility exists for adverse action by the 
legislature, it is doubtful if it would care to assume the full neces- 
sary responsibility under all the circumstances. 

It is the intention to develop the Illinois budget into a com- 
prehensive financial program, including the maintaining of ac- 
counts, analyzing of expenditures, all leading up to a well founded 
statement of appropriation needs, together with a study of the 
sources of revenue necessary to meet such requirements. Under 
the Civil Administrative Code, a distinct advance has been made in 
the centralization of authority and responsibility, and to this 
extent, the practical working out of budget procedure is made 
possible. 



THE NEW JERSEY BUDGET LAW 1 

ARTHUR N. PIERSON 

Chairman, Commission for the Survey of Municipal Financing of 
New Jersey 

AFTER seventy years' experience with the Legislative 
Budget, as the instrument for distributing state revenues, 
New Jersey has adopted the Executive Budget. The Act 
creating this budget was passed in the legislative session of 1916. 
It superseded the Legislative Budget for the appropriations made 
last year, which became operative November 1 last. 

Under the new plan, the controller submits his estimate of the 
available state revenues, and the departments and institutions 
submit their requirements in detail to the governor prior to 
November 15. A full explanation is required for all increases 
and the needs for extensions or improvements. The requests 
are tabulated and investigated by the governor's own assistants, 
who can be well designated as his Budget Committee, although 
their work is confined to the months of November and December. 

During December, the governor conducts budget hearings, after 
which the budget is fixed. In the opening week of the legislature, 
he submits the budget with his budget message to the legislature. 
The budget is then referred to the Joint Appropriation Committee, 
which sits during the legislative session for further hearings and 
revisions. The Appropriation Committee submits its final re- 
port to the legislature during the week prior to adjournment. The 
budget thus prepared is passed in February or March and becomes 
operative on the first of November following. 

New Jersey has had but two years' experience under the new 
plan of budget making, but it has already proved its value as a 
means for a more equitable distribution of state funds and a better 
control of expenditures ; as such it has many features of marked 
improvement over our old plan, and will, I am confident, prove 
an unqualified success, and well worth the work involved in estab- 
lishing the new system. 



a Read at the National Conference on War Economy, June 6, 1918. 



70 CONFERENCE ON WAR ECONOMY [Vol. VIII 

I appreciate it is too early to predict the full measure of success 
which will accompany our new plan for budget making, but my 
three years' experience as a member of the Appropriation Com- 
mittee under the old Legislative Budget plan gives me something 
of an insight into its shortcomings and possibly I may be pardoned 
for pre- judging in a measure the benefits which may be expected 
from our Executive Budget. 

In my first year's service on the Appropriation Committee, this 
committee was composed of three lawyers, one physician, one 
farmer, two insurance agents and two business men, only one 
member having ever had any previous experience in Appropria- 
tion Committee work. From my study of the Legislative Budgets 
in other states, it would appear that New Jersey's experience in 
this matter is fairly typical of other states. It must be evident 
that the best results cannot be obtained under such a scheme. 

If sectionalism, politics, and "favor me and I'll favor you" could 
be eliminated from the work of the Appropriation Committee, 
which is, of course, practically the maker of the Legislative 
Budget, there would still be enough to condemn this manner of 
budget-making as a practical means for appropriating state 
revenues. I have in mind the ever-changing personnel of the Ap- 
propriation Committee, which brings to this work men who lack 
the training and sometimes the ability. These factors constitute an 
obstacle that must be ever present to greater or less degree in such 
a scheme for budget-making. It is impossible for such a commis- 
sion to discern between the good and the bad, the necessary and 
the unnecessary in any request for funds. 

Under our plan for the compilation of our Executive Budget, 
the responsible head of the government determines the policy for 
extensions and improvements, and in a general way fixes the funds 
which are to be allotted to the several institutions. The total of the 
appropriation of the budget as fixed by the governor must be 
within the funds estimated as available for state purposes for the 
year. It is, however, within the province of the Appropriation 
Committee to revise any items which in its discretion should be 
amended. At all events, I feel certain that as our governor can- 
not succeed himself, the danger of political bias has been over- 
come as far as can be reasonably expected. 

New Jersey's Executive Budget, has, however, a wider purpose 
than that of distributing funds or controlling expenditures. It is a 



No. 1] THE NEW JERSEY BUDGET LAW 71 

vital part of Governor Edge's plan for reorganizing New Jersey's 
administrative and fiscal affairs upon a business basis. In this 
particular it serves an important purpose in bringing the governor 
into vital contact with the needs and activities of the various state 
institutions. Such a connecting link between the responsible head 
of the government and the activities of the state is essential to a 
successful administration of public affairs. 

While Governor Edge was in the senate, he inaugurated his plan 
to put the activities of the state on a business basis, making the 
governor the responsible executive head of the business concern. 
As the first step in this program, he effected the reorganization and 
consolidation of some forty or fifty more or less overlapping com- 
missions and boards into six single-headed commissions, thus co- 
ordinating kindred activities in the several new commissions. At 
the same time he organized and established the state purchasing 
system, which was an important feature of the plan for efficient 
and economical business government. The program of reorgani- 
zation has covered a period of four years, and was only com- 
pleted at last winter's session of the legislature, when all chari- 
table, correctional and penal institutions were brought under the 
control of a single-headed Charities and Correction Commission. 
Having served on the Economy and Efficiency Commission with 
Governor Edge, when he was in the senate, I feel in a measure 
familiar with the needs which existed for a thorough reorganiza- 
tion of state affairs and the important part our Executive Budget 
has played in this program. 

As yet neither the budget nor the reorganization of our state 
activities has produced all the good results of which it is capable. 
It will take time and patience to work out the problems 
which must necessarily arise in the transition from the old to the 
new system. As capable of good results as the Executive Budget 
is under ordinary circumstances, the double purpose which it 
serves in New Jersey increases many times its possibility for good. 
At this point, however, I am led to make a suggestion which is 
applicable to New Jersey's budget as well as to every form of 
budget, and to my mind, indispensable to the best budget results. 
I refer to a permanent budget commission to be appointed by the 
governor and directly responsible to him, composed of experts 
or specialists in the several branches of institutional work. The 
members of such a commission should be employed the year 



72 CONFERENCE ON WAR ECONOMY [Vol. VIII 

around; the greater part of their time to be spent in field work, 
making unannounced visits to the institutions and even living there 
for such periods as will give them a definite knowledge of the 
work and the needs of the institution. 

My experience with state and municipal budgets has brought me 
to the conclusion that the successful outcome of a budget system 
depends to a far greater degree upon the ability and earnest pur- 
pose present in the making than upon its form or plan. In other 
words, it is the man behind the gun who brings the results. To my 
mind, we have placed far too much emphasis upon the form or 
plan of budget, and paid too little attention to the care and intelli- 
gence used in its making, and the integrity with which its pro- 
visions are carried out. The budget in itself appeals to me much 
as the plan and specifications of a building; they are good or 
bad, according to the measure of intelligence and honest purpose 
with which they are made, and I think we shall agree that they will 
produce results, all things being equal, in the proportion that these 
factors are present. Such a budget commission would be of great 
assistance to the Appropriation Committee in making the Legisla- 
tive Budget, and on the other hand, would prove of great value 
to the governor and the Appropriation Committee in making and 
perfecting the Executive Budget. The assistance of such a com- 
mission would find an added purpose in New Jersey alone in keep- 
ing the governor in constant touch with the activities and needs 
of the institutions. A commission of this kind, with their knowl- 
edge of the state's needs, would be of great value to the purchas- 
ing department in the standardization of supplies. 

There are one or two features in New Jersey's budget scheme 
which have been in the process of evolution and adjustment for 
the past few years. Up to a year ago, New Jersey followed the 
policy of detailed appropriations with scarcely a deviation. In 
1915, however, we overcame some of the unyielding provisions of 
the detailed budget by giving the State House Commission author- 
ity to transfer items within department appropriations. This 
flexibility proved a timely expedient in adjusting conditions created 
by the war and saved our institutions from much embarrassment. 

It has been a time-honored practice to pass a supplemental bill 
at each session of the legislature. This practice brings about the 
same unsatisfactory conditions as exist in other quarters, and I 
am inclined to believe to a degree destroys the incentive for econ- 



No. 1] THE NEW JERSEY BUDGET LAW 73 

omy in administering institutional affairs. It has always been 
looked upon with favor by our institutions, as this gives them two 
chances at the state treasury. The supplemental budget has with 
us had some justification; as in the past, requests for funds were 
filed a year previous to the operation of the budget, which, under 
normal conditions, makes a scientific distribution of state funds 
and the administration of institutions somewhat difficult. It has 
tended to make the Appropriation Committee careless and provided 
a ready means of pushing its responsibility on to its successors. 

When New Jersey adopted its Executive Budget, we determined 
to get away from a supplemental or emergency budget, but not 
until last winter were we able to accomplish this purpose. In 1917, 
to meet the unforeseen requirements arising from our entrance into 
the war, we granted a lump-sum emergency appropriation, and 
placed its distribution in the hands of the State House Commis- 
sion, which is composed of the governor and the heads of the 
several departments; this provided relief for many trying condi- 
tions which could not have been foreseen in either our annual or 
our supplemental budget. 

Last winter, we changed our fiscal year from November 1 to 
July 1, thereby bringing the operation of our budget four months 
nearer the time for filing requests for funds, and within three 
months after its final adoption. By thus bringing the operation 
of the budget within a reasonable time after its passage, and with 
the means of relieving the distress of unforeseen conditions 
through our emergency fund we were able to do away with the 
supplemental appropriation bill for the first time in several genera- 
tions. 

I appreciate that the power given the State House Commission 
to transfer appropriations and the expenditures of our emergency 
fund does violence to the theories of that school of budget making 
which adheres strictly to the detailed or segregated budget. I will, 
for the moment, accept this plan of making appropriations, but in 
so doing, must ask its defenders to accept with it the necessity for 
more care and intelligent thought in the making than is given the 
average budget, whether executive or legislative. I recognize the 
force of the argument in support of the segregated budget and 
freely admit that the carefully detailed appropriations bring the 
expenditures of such a budget under more definite control. I am 
inclined to the belief that the lack of flexibility of such a budget 



74 CONFERENCE ON WAR ECONOMY [Vol. VIII 

surrenders economy and efficiency in its operation. At the same 
time, we must admit the force of the argument on the other side, 
viz., that those who know most about an institution can best admin- 
ister its affairs, and that a detailed budget destroys the incentive 
and even the opportunity for the exercise of initiative and execu- 
tive ability. In other words, it makes the executive head or board 
of managers of an institution simply the errand boys of the budget 
and its makers; in short, I will accept the detailed budget only 
after the most positive assurances that it has been intelligently 
made. 

To sum up my conclusions, I am a firm believer in the 
Executive Budget. It has proved to be a vital part of our 
plan for a business administration of state affairs. It appeals to 
me as a step in the right direction, but I wish to emphasize again 
my unbounded faith in a permanent specialized budget commission 
as the necessary adjunct to, or rather as an indispensable 
part of any budget plan. I believe this will prove true in New 
Jersey, as well as in other states, as I am convinced that no budget 
will be the instrument for a scientific distribution of state funds 
until it has the support and guidance of such a commission. 



DISCUSSION OF THE NEW ERA IN BUDGETS 

Victor Morawetz, New York city, presiding: The popular meaning of 
the word "budget" is decidedly vague. Almost any more or less detailed, 
more or less accurate estimate of expenditures during some more or less 
definite period of time is commonly called a budget. For example, a few 
days ago a friend stated to me that she kept a budget of her personal 
expenses for each quarter, and she said that it always came out right 
because every evening she added to her budget any expenses which she 
had forgotten. I asked her how she managed to make this budget balance 
with her income. "Oh," she said, "whenever I exhaust my bank account 
I just stop paying cash and have things charged, and then add the things 
charged to my next budget." 

Of course students of government do not use the word "budget" in this 
loose though perhaps convenient sense. To them a governmental budget 
means a complete, detailed and accurate estimate of all the contemplated 
expenditures of the government during the next fiscal period, together 
with a complete and definite plan for meeting those expenditures. 

Moreover, students of government recognize that a sound procedure for 
the preparation, the initiation and the adoption of a budget is a matter 
of as great importance as the budget itself. The chief executives of 
government, the president, the governors, and the heads of the various 
municipalities throughout the country have charge, or should have charge 
of the conduct of the affairs of their respective governments and of the 
expenditure of the government funds, for which they should be made 
politically accountable. Without a sound and well regulated budget pro- 
cedure it is impossible to hold these executives to this responsibility. A 
sound budget procedure, therefore, involves first, the preparation of the 
budget or financial program by the chief executive in collaboration with 
his several heads of departments, and its submission by the executive in 
its completed form to the legislative branch of the government; second, 
the executive shall have ample opportunity to appear publicly before the 
legislature, sitting as a committee of the whole, to explain the budget, to 
meet criticisms, and to take an active part in perfecting it ; third, the legis- 
lature shall have power to reduce or cut out items, but no power to increase 
items or to add items which the chief executive does not want, and for 
which, therefore, he cannot be held responsible. 

This in brief is the system which has been adopted in every civilized 
country, I believe, excepting our own. It is only an adaptation of the 
methods universally applied to the conduct of large business enterprise. 
Any business man would scout the suggestion that the financial plan of 
his company should be formulated either by one committee or by half a 
dozen committees of his board of directors, in the absence of the president 
who has charge of its business, and that it should then be adopted by 
the board of directors without consulting the president. Yet that is sub- 



76 CONFERENCE ON WAR ECONOMY [Vol. VIII 

stantially the procedure of our national government and of the govern- 
ments of most of our states and municipalities. 

The procedure in vogue in the United States was developed early in the 
history of the country as a result of political conditions. In consequence 
of this, a large part of the people, including many of our legislators, seem 
to think that it is a natural procedure. They fail to appreciate how utterly 
unbusinesslike it is, how demoralizing to the legislators, and how subversive 
of all good government. 

One of the most important functions of institutions like the Academy of 
Political Science, the Bureau of Municipal Research, and the Institute of 
Government Research, is to make the voters understand the extreme im- 
portance of adopting a more sound and businesslike method of preparing 
and accepting financial plans for the budgets of their respective 
governments. 

Mr. Robert Dowling, of the New York Real Estate Board : The method 
for so many years of keeping a large amount of expenditures out of each 
annual budget was by issuing long-term bonds. The Real Estate Board is 
not in favor of issuing bonds for temporary improvements, even for school 
houses. It is in favor of the "Pay-as-you-go" policy for the City of New 
York. 

For the past twenty years since consolidation, we have had an increasing 
tax rate, a rate that began in 1902 or 1903, when we increased our assessed 
values. Under the former method about two-thirds of the real value was 
assessed, while at present property is assessed presumably at one hundred 
per cent of the market value. I should say that the City of New York is 
now over-assessed. Competent judges have thought that we are assessed 
as high as twenty per cent over the real value. 

We have suggested various means of saving money, but we all know 
with what results. The city's expenses have increased year after year. We 
have a 2.36 tax rate in New York city. A limitation in the constitution of 
the state of New York limits cities to an annual expenditure for local pur- 
poses of two per cent of the assessed value of the property within the city 
limits. The addition above two per cent now is for meeting the debt 
service and the state taxes. I am informed that the 2.36 rate today means 
1.66 for local purposes and .70 for state taxes and debt service. We are 
within thirty points of the limitation fixed by the constitution and we are 
perfectly willing to reach the limit of two per cent. Then we are stopped 
by the constitutional provision, not in the charter. Very few people in 
New York seem to know that the constitution fix'es that limitation. Last 
winter when I was appearing before some of the senate committees I was 
told by one of the leading senators of the state that the limitation was in 
the charter, but it is in the constitution of the state of New York. 

While this war continues, while the cost of labor and materials is at 
least one hundred per cent over what it was in 1914, this expenditure 
should stop. We should utilize the plants that we have, whether for schools 
or any other purpose. We can use them. We are not getting the use out 
of our properties that we would if we were a private business. The city 



No. 1] THE NEW ERA IN BUDGETS 77 

is collecting from real estate over $100,000,000 annually beyond what it 
collected in 1903. It is collecting in personal taxes $4,000,000 to $5,000,000 
less than it collected in 1903. We propose that the City of New York be 
limited in its expenditures by the legislature, which has that duty put upon 
it by the constitution. That also has been forgotten. The legislature is 
specially directed by the constitution to limit the expenditures of cities, 
and it has done nothing, so far as I know, to accomplish that. It has done 
nothing but increase the expenses. 

At the last session the Committee on Taxation and Legislation, of which 
I am chairman, presented a bill to fix the tax rate in New York city at 
1.75% and fix a 2.0005 tax on personal property in this city. There is 
something awry when $4,000,000 of personal taxes was collected in the 
City of New York in 1916, and the same district now pays $900,000,000 in 
income taxes to the United States government. 

We do not endorse any system of issuing bonds for these improvements. 
We are in favor of charging it to us in the annual budget. We prefer to 
pay the additional taxation rather than to have this debt heaped upon the 
City of New York. We can watch the budget each year much more easily 
if it includes $15,000,000 or $20,000,000 than if bond issues to those amounts 
are made. We are opposed to the plan that Controller Craig has advo- 
cated here. We are perfectly willing to accept the burden fixed by the 
constitution. 

Frank J. Goodnow, President of Johns Hopkins University: I have 
noticed that in the remarks which have been made with regard to a budget 
it has been spoken of as a program of work for the next ensuing fiscal 
period. The Maryland budget amendment does not regard the budget in 
that light, and it is going to be difficult for any state budget or for any 
budget that may be adopted for the United States to be so considered. Tf 
an executive budget law takes away from the legislature the right to increase 
any of the estimates which have been made by the governor, at the same 
time the governor must be required, as he is required by the budget amend- 
ment of Maryland, to present not so much a program of work to be done, 
as a plan for financing an organization already in existence. If you have 
no system of cabinet government as it exists in England, where the budget 
system originated, a governor can, by refusing to estimate for any enter- 
prise to which he is opposed, disrupt the entire state administration. Sup- 
pose that under the law a public service commission has been provided 
with certain functions to discharge, and with salaries fifixed. Can the gov- 
ernor, by refusing to put in any estimate for the public service commis- 
sion, wipe it out of existence? That is the result of considering the budget 
as a program of work. It can be a program of work to be done for the 
next fiscal period, that is, a program of work to be done under the discre- 
tion of the governor, only where the legislature has some power to put the 
governor out of office. It does not have such power under our system 
where the governor refuses to provide for an administration as fixed by 
law. We have attempted to provide that the governor must put in estimates 
for the organization as it is under the law. As Governor Harrington has 



78 CONFERENCE ON WAR ECONOMY [Vol. VIII 

pointed out, the governor may accompany that statement and estimate with 
the suggestion that such offices be repealed, but we prevent the governor 
from assuming power, through the power of estimate, so as to disrupt the 
governmental organization of the state. That is one of the things to guard 
against in this budget movement, so long as we retain the principle of the 
separation of the powers of the governor and the legislature. 

Furthermore, I think Dr. Cleveland is absolutely right as to the necessity 
for making some provision for an intelligent and effectual consideration by 
the legislature of the estimates that may be put in by the governor; and, 
in order to complete this budget movement successfully, we must make 
provision for some such officer as the controller and auditor general in 
Great Britain. I think it can be done easily by a mere extension of the 
powers of the ordinary controller. Through the adoption of a system 
of responsibility to the legislature in cases where we are giving the gov- 
ernor the power to omit from his estimates anything that he sees fit, and 
with the provision for a more effective control by the legislature over the 
estimates of the governor, I think we shall work out a scheme that will 
greatly improve the fiscal organization and administration of our state and 
federal government. 



CAPITAL ISSUES FOR STATE AND MUNICIPAL DEBTS 
AND THEIR RELATION TO WAR FINANCING 1 

PAUL M. WARBURG 
Vice-Governor, Federal Reserve Board 

INTELLIGENCE is a question of priority. It is a question 
of seeing a thing sooner than the other fellow. When once a 
thought has been clearly conceived and expressed, when once 
it becomes public property and is generally understood, it becomes 
trite and obvious. So also the winning of the war has become a 
question of priority. 

After a four years' struggle, during which over $112,000,000,- 
000 have been spent, the question of the original state of pre- 
paredness has lost its significance in its bearing upon the final 
outcome. That side, however, has the best chance of winning 
which, in the long run, will prove the quickest to foresee, and 
to grasp, the constantly shifting problems of the struggle and 
to take the steps necessary to master them, whether or not they 
are of a military nature. As the President said in his splendid 
appeal for thrift on May 29, "This war is one of nations — not of 
armies." Modern warfare has become a struggle of resources 
and industries as much as a struggle of men, and it involves, there- 
fore, not only the millions that actually serve in the field, but the 
hundreds of millions that stay at home. It means that no country 
has any chance for victory that refuses to organize its entire popu- 
lation so as to concentrate its thoughts and efforts upon winning 
the war. In order to triumph, the rich and poor alike must realize, 
before it is too late, that the government has the first call on our 
sons, our services, our goods and our savings; that it is entitled 
to every available ounce of material and man power. 

England began the war with the slogan of "Business as usual" ; 
it took many fateful months until the country fully accepted Earl 
Kitchener's view : "Either the civilian population must go short of 
many things to which it is accustomed in times of peace or our 



1 Read at the National Conference on War Economy, June 6, 1918. 



80 CONFERENCE ON WAR ECONOMY [Vol. VIII 

armies must go short of munitions and other things indispensable 
to them." Today there is no one who would take issue with Lloyd 
George's striking statement that "Extravagance costs blood; the 
blood of heroes." I believe it is freely admitted today that Eng- 
land's failure to adopt from the beginning the point of view of 
these eminent leaders and to appreciate at an early stage the duties 
devolving upon the civilian population in times of modern war- 
fare has been the cause of loss to her of untold life and treasure. 
But while England was dealing with wholly unprecedented con- 
ditions, justly baffling the ablest minds, we who have the advantage 
of her dearly bought experience should stand convicted of a very 
grievous crime if we lost precious time in adjusting our minds to 
a full realization of our civic duties at this juncture. 

In time of war nothing is more dangerous and more fatal than 
delay. The present emergency requires that the country be 
aroused to a thorough consciousness of the fact that whoever uses 
material, credit, labor or transportation unnecessarily is placing a 
handicap upon his government in its efforts to complete its prepa- 
rations as speedily as possible. Instead of aiding the government 
he competes with it, bars its way, and is guilty of delaying its 
progress towards victory. 

It was for the purpose of curbing such waste of the national 
resources that the British established their Capital Issues Com- 
mittee, and that a similar committee was organized here about 
five months ago. Both committees deal only with cases involving 
the sale, or offer for sale or subscription, of securities (any sale 
in excess of $100,000 in stocks or bonds falls within the scope of 
the American committee's operations). In so far, however, as the 
great national task of encouraging economy and thrift is con- 
cerned, the underlying principles are the same whether we deal 
with individuals, with industrial and public service corporations, 
or with states and municipalities, except only that those principles 
apply with so much greater force in the case of states and munici- 
palities, not merely because the sums involved are likely to be so 
much greater, but also because the example given by these gov- 
ernmental authorities exercises a powerful influence — for good or 
for evil — in molding the civic mind. It is for this reason that I 
am particularly grateful for the privilege accorded me by the 
invitation to speak upon the topic of Relations of Federal War 
Financing to the Capital Issues of States and Municipalities and 



No. 1] CAPITAL ISSUES AND WAR FINANCING 81 

to be permitted to address a conference which counts amongst 
its participants so many men prominent as leaders in the public 
life of their communities — governors, controllers and mayors, 
whose very presence will insure the widest possible interest in the 
proceedings of this conference. 

When the Federal Reserve Board's Capital Issues Committee, 
at the request of the secretary of the treasury, undertook to 
deal with the question of controlling and curtailing capital issues, 
it established as one of its first principles that every expenditure 
not strictly compatible with the public interest of the United 
States — that is, every expenditure not directly helpful to the 
prosecution of the war, or absolutely necessary for the health and 
reasonable comfort of the people, ought to be abandoned for the 
time being. The Capital Issues Committee was mindful of the 
fact that it was self -constituted and acting without express author- 
ity of law, and that it could secure results only by enlisting the 
voluntary and patriotic co-operation of all concerned. I am frank 
to admit that when the committee began its operations its mem- 
bers were not at all certain that they would not meet with deter- 
mined opposition on the part of certain groups of industries which, 
of necessity, would be seriously affected by its rulings. It is a 
genuine satisfaction to be able to state that, from the very begin- 
ning, the committee met with nothing but the most patriotic 
response. No matter how important or vital any particular issue 
may have seemed to the applicant when he first presented his case, 
and no matter how insistent he may have been in the assertion of 
the prime importance of his individual requirements, nevertheless, 
whenever the committee, or one of its sub-committees, explained 
the true significance of the problem and the principles which it 
was necessary to apply in order best to serve the country, it never 
failed to awaken that finer spirit that willingly subordinates indi- 
vidual advantage to the national welfare. The American Bankers' 
Association, the Investment Bankers' Association and the leading 
stock exchanges of the country assisted the committee greatly by 
immediately passing resolutions to the effect that their mem- 
bers would not place, or deal in, any securities coming within 
the scope of the Capital Issues Committee upon which it had 
not first favorably passed. The committee was also greatly helped 
and encouraged by the fact that the authorities of some leading 
communities promptly made it known that they would do every- 



82 CONFERENCE ON WAR ECONOMY [Vol. VIII 

thing in their power to co-operate. As soon as the committee was 
organized the Honorable A. J. Peters, Mayor of Boston, visited it 
in person in order to determine in what manner he might best 
assist its work. In his inaugural address, delivered on February 
4, he set forth principles that have already proved an inspiration 
to many, and will continue to guide many more. He stated : 

The gigantic task which we are called upon to perform is one which 
requires the mobilization of all our resources, material and moral. We 
cannot all of us fight for democracy on the plains of France. We can all 
help win the battle for democracy by our loyalty and sacrifice at home. To 
be effective the national government must have the co-operation and 
support of every unit of government, state and city. The great municipal 
agencies must shape their policies to strengthen and support the central 
power. 

The support which our municipality pledges to the national government 
can nowhere be more effective than in the field of finance. The enormous 
and imperative needs which the national government must meet by the sale 
of bonds require that the competition in the sale of securities by other 
agencies should be restricted as far as possible. The Federal Government 
is entitled to the first call upon every dollar available for investment, just 
as much as it is entitled to the first call upon every man available for 
military service. Local bonds must necessarily compete in the market with 
national securities, and their issue, therefore, should be restricted to the 
lowest possible amount. 

Early expressions of this character were invaluable because it 
was fully recognized by the committee that it had no power of law 
whatever to restrict or interfere with the rights of states or 
municipalities to raise funds for any purpose they desired, and 
that only by enlisting their voluntary co-operation could it hope 
to obtain the best possible results. This is true even though it 
was realized that the pledge of the stock exchanges and issuing 
houses was likely to be a very important factor in securing the 
co-operation of the few who might otherwise have been unwilling 
to join in the general effort to conserve the national resources. 

The War Finance Corporation Act, which gives to the Capital 
Issues Committee legal standing, continues to preserve this volun- 
tary character. The bill, as originally introduced, vested the 
committee with power to punish those who would not submit to 
its rulings. Congress, however, in eliminating this provision, 
expressed the conviction that it was safe to rely upon the patriot- 
ism of the people of the United States to co-operate of their own 
accord without the threat of punishment, just as the British co- 



No. 1] CAPITAL ISSUES AND WAR FINANCING 83 

operate with their Capital Issues Committee, an organization 
which likewise depends entirely upon voluntary support. 

In dealing with states, municipalities or counties, the Capital 
Issues Committee considered mainly expenditures for the follow- 
ing purposes : 

Hospitals 

Schools 

Sewers 

Filtration plants 

Municipal buildings 

Electric light plants 

Roads, parks and bridges. 
When considering applications of this character, the committee 
made it a rule to seek advice from the federal department boards 
and commissions having particular knowledge in the premises, for 
the purpose of determining whether or not the expenditure in- 
volved was essential for the successful prosecution of the war, 
or for the health and necessary comfort of the people. Except 
when acting upon securities issued for the purpose of providing 
funds for the renewal of maturing obligations, only those cases 
that were found to be compatible with the public interest, as above 
defined, received the approval of the committee. In reaching its 
conclusions it observed the broad principle that the use of capital, 
material or labor could be justified only where results could be 
expected within a very reasonable time. Thus, applications for 
roads were acted upon favorably only when it was satisfactorily 
established that they were of military importance, leading to 
camps, docks, or shipbuilding plants or establishments producing 
materials necessary for the prosecution of the war, or whenever 
they were shown to be important from an agricultural standpoint 
in order to open up agricultural districts or to make their products 
available for ready distribution. In the case of schools and hos- 
pitals the committee sought the advice of the commissioner of 
education or the surgeon general as to whether or not new 
buildings were absolutely required and if so whether or not tem- 
porary buildings could be used instead of permanent ones, as 
temporary buildings absorb less material, less labor, less trans- 
portation and less money. Monumental buildings and parks or 
bridges merely involving greater comfort or luxury were disap- 
proved. In many instances the controllers of certain cities and 



84 CONFERENCE ON WAR ECONOMY [Vol. VIII 

states consulted with either the central committee or the sub-com- 
mittee of their district, discussing their budgets item by item, and 
almost invariably these conferences resulted in the elimination of 
unnecessary expenditures and a substantial reduction in the esti- 
mated appropriations. It is a great satisfaction, therefore, to 
have this opportunity of publicly expressing appreciation of the 
splendid spirit of patriotism shown by these states and municipal 
administrations. 

This leads me to the complex question of the relationship of the 
state and municipal governments to their various public service 
properties. Almost everywhere there are outstanding at this time 
franchise and contractual obligations for the building of new sub- 
ways and surface car lines, or for the furnishing of additional 
supplies of water, electric light, power, heat and gas. In the 
majority of these cases the national interest at this time requires 
that every effort be made to reach an understanding by which 
such construction may be postponed unless indeed it serves the 
successful prosecution of the war and the health and necessary 
comfort of the people. We need the men and the steel to build 
our ships rather than to build new subways. We need the coal and 
electric power to drive the wheels of our war factories rather than 
to give more light for advertising displays or for other non-essen- 
tial uses. To a certain extent it is true that this new construction 
is being restricted by the Priorities Division of the War Industries 
Board, which controls the sale of articles such as steel and copper 
so as to prevent their being employed for purposes incompatible 
with the public interest. But both for the Priorities Division and 
for the Capital Issues Committee it is a difficult task to deny the 
use of these materials, or the necessary capital, where it can be 
demonstrated that by reason of such denial the companies affected 
may be embarrassed to the point of defaulting on their contractual 
obligations. I hope it will not be considered presumptuous on my 
part if I venture to urge that all state and municipal governments 
do their utmost wherever possible and practicable to find a modus 
vivendi for their public service corporations and help them to 
reach agreements whereby onerous or unnecessary contractual or 
franchise construction obligations may be waived or held in abey- 
ance at least for the period of the war. In doing this they will 
effectively support the work of the federal government. Irre- 
spective of the release of labor and material involved, it is obvious 



No. 1] CAPITAL ISSUES AND WAR FINANCING 85 

that the community itself will best be served by postponing as 
much work as possible until a time when prices will be lower and 
when, in addition, there will exist the need of finding employment 
for the surplus of labor which may be expected upon the termina- 
tion of the war. 

The drastic shrinkage in the value of public utility investments 
and the impairment of the credit of these corporations is a source 
of grave danger to the general financial situation at this time. We 
need the savings of the investor and it would be a serious menace 
to the ability of the government to finance the war if public service 
corporations, strong and solvent before the beginning of the world 
conflagration, should be forced to go into receivers' hands because 
of conditions for which they are not responsible. Their credit 
must be maintained both on account of innocent investors and on 
account of the necessity of preserving the physical development 
of corporations whose operations are needed on account of their 
direct and indirect effect upon the successful prosecution of the 
war or the health of the people. 

Franchises in many cases have become excessively onerous for 
such corporations, due to the fact that labor, coal, steel and cop- 
per can be secured only at exorbitant prices, while the charges 
for services rendered often cannot be properly adjusted without 
the consent of the community involved. The president, in his 
letter to Secretary McAdoo, dated February 19, 1918, expressed 
his profound concern over this situation, stating at the same time 
that he hoped that state and municipal administrations would 
make every effort to deal with these corporations in a spirit of 
liberality. All that it is proper for me to do, therefore, is to em- 
phasize the public interest in the protection of the credit of these 
corporations and in the preservation of their ability to perform 
their important functions. 

When the old Capital Issues Committee first undertook its work 
it arranged for a conference with public service commissioners 
representing various states of the Union. The committee was 
delighted to find that these state commissioners were not only open 
to the suggestions made by the committee but that they were in 
fullest sympathy with its program and eager to co-operate in every 
possible respect. 

It is gratifying to note that a number of leading municipali- 
ties, after a careful study of this problem, have since decided to 



86 CONFERENCE ON WAR ECONOMY [Vol. VIII 

make such equitable adjustments as to enable their public service 
companies to weather the storm, and it is hoped that their exam- 
ple will be emulated all over the country. 

The thought may have occurred to many that the War Finance 
Corporation has been created to cope with this very problem. 
Without attempting to speak for the War Finance Corporation 
and restating only what its directors have publicly expressed, I 
may say that this corporation, in the majority of cases, expects 
to deal only with concerns that are solvent and able to provide a 
bankers' guaranty. The amount that may be advanced without 
that guaranty is strictly limited by law and it is safe to assume 
that, except where the public interest absolutely requires, the cor- 
poration will not consider itself warranted in making advances to 
companies on the brink of insolvency. Therefore, where advances 
from the War Finance Corporation are to be sought, it appears 
advisable that the communities involved should first do their share 
in placing their public utility companies on a basis upon which they 
may be at least self-sustaining. 

It cannot be denied that state and municipal authorities en- 
forcing economy are often faced with a difficult task. At times it 
may be very hard indeed to resist the local clamor for improved 
public service and the pressure brought by those interested in the 
granting of new contracts. Such cases have come before the 
committee. There were instances where the necessity for new 
roads was not so urgent as the desire of the contractor to secure 
the work, and in some districts architects or builders were more 
anxious than conscientious public authorities to build schools. In 
those cases, the support given to the local authorities by the com- 
mittee often was of the greatest value to them. The Federal 
Reserve Board's committee was always ready to shoulder the re- 
sponsibility of protecting the national interest or to take upon 
itself any blame for the consequences of its action. I am quite 
certain that I am expressing the views of the new Capital Issues 
Committee in saying that it will continue to proceed on the same 
lines. May I urge, therefore, that state, county and city officials 
avail themselves of the services of the Capital Issues Committee 
in the freest possible manner? It is very important that this 
should be done, not merely when the securities are about to be 
issued, but especially before the expenditures and the contracts are 



No. 1] CAPITAL ISSUES AND WAR FINANCING 87 

authorized. It may be embarrassing for the Capital Issues Com- 
mittee to decline approval of an issue contemplated for the pur- 
pose of liquidating a banking obligation previously incurred, except 
indebtedness incurred prior to April 5, 1918, in accordance with 
the provisions of Section 203 of the Act of April 5, 1918; but 
you can readily see that if the committee did not stand ready to 
disapprove bond issues to be made in liquidation of a banking 
debt previously incurred for some purpose incompatible with the 
national interest, some corporations and municipal authorities might 
soon adopt the practice of first creating the debt and then forcing 
the hand of the committee. 

Curtailment of expenditures involves automatically a propor- 
tionate reduction in the amount to be raised by the sale of securi- 
ties, and to that extent it means that local administrations refrain 
from competing with the federal government for the savings of 
the people. I need not enlarge on that important point except to say 
that if at present it is proper for all corporations to avoid this 
competition with the government, there is all the more reason for 
states and municipalities to do so because the majority of the 
securities sold by them are exempt from federal taxes. The fed- 
eral government, instead of continuing to issue 3^% tax-exempt 
bonds, has adopted the policy of selling 4J^% bonds only partly 
tax-exempt, and is willing to pay the higher interest rate for 
the purpose of keeping as unrestricted as possible its field 
of comprehensive taxation. While I do not question the legal 
right of the states to issue tax-exempt bonds, we must recognize 
that to the extent that a state issues such tax-exempt securities, it 
deprives the federal government of the taxing power so essential 
for the public welfare in this emergency. All the more sacred, 
therefore, is the obligation imposed upon local governments issu- 
ing such tax-exempt bonds not to authorize any issues except 
those absolutely necessary for the immediate welfare of the com- 
munity. 

May I, in passing, dwell upon an additional reason why it is of 
the utmost importance to reduce to the minimum the issue of 
securities at this time? It is on account of their bearing upon 
"inflation," a problem with which it is impossible for me to deal 
exhaustively within the limits of this address. 



88 CONFERENCE ON WAR ECONOMY [Vol. VIII 

1 The pernicious consequences of inflation are a rapid increase 
in prices, and a corresponding decrease in the purchasing power 
of money. As the increase in prices progresses, the amount that 
governments must borrow grows correspondingly. It becomes a 
neck and neck race between a fictitious wealth and a reduced value 
of what that wealth can buy in labor and in goods. It must be our 
aim, therefore, to restrict inflation to the smallest possible scope 
compatible with the achievement of our national purpose — the 
successful prosecution of the war. 

From an economic point of view, it is considered unsound and 
unbusinesslike for any one to issue his obligations for things of no 
permanent value. No corporation would think of issuing bonds 
against the coal that has been consumed in producing its finished 
article or against wages that have been paid ; nor would you or I, 
at the end of the year, treat as an asset the food that we have eaten 
or the suit of clothes that we have worn and thrown away. That, 
however, is what all belligerent governments are doing and what, 
under present circumstances, they are obliged to do. This process 
must lead to economic disaster wherever the waste of the govern- 
ment is not counterbalanced by increased economy on the part 
of the people. We must bear in mind that the production of per- 
manent values in normal times is accompanied by a certain amount 
of necessary and unnecessary wastage, such as the consumption 
of goods, food and clothing, in quantities beyond what is neces- 
sary for the production of the article and expenditures for the 
comfort and luxuries. The necessary material and labor put into 
the article produced, plus the incidental wastage of goods, and 
plus a reasonable profit, constitute in normal times the value of 
the properties added to the assets of the world. This normal 
wastage must be reduced as the abnormal wastage of the govern- 
ment increases. If this policy is carried out consistently the speed 
with which inflation proceeds is thereby reduced proportionately. 

To sum it up in its simplest form: on the one side of the bal- 
ance sheet of the world corporation are all the things uncon- 
sumed; on the other side are the dollars. If the dollars increase 
rapidly and if the "things" do not increase — or if indeed they 



iThis is a partial quotation from my paper, "Save and Subscribe and 
Save the Country," published on April 28, 1918, in which there was pre- 
sented a fuller discussion of the various aspects of inflation. 



No. 1] CAPITAL ISSUES AND WAR FINANCING 89 

decrease — there must ensue inflation of prices. The means to 
counteract inflation are, therefore, on the one hand, increased pro- 
duction and decreased consumption of "things" and, on the other, 
a slowing down in speed and volume in the creation of new dollars 
in the form of new securities, currency or credits. The more we 
save, the more do we increase the amount of "things" on the one 
side of the ledger and the more may we hope to succeed in keeping 
their price down, decreasing thereby the amount of new dollars 
to be issued in payment. It follows that inflation is not a question 
merely of banking or currency, but a question fundamentally of 
saving. 

The duties of the state and municipal governments with respect 
to this great national problem are easily perceived from the fore- 
going. By curtailing expenditures to the utmost, they not only 
conserve to that extent goods, labor and transportation, and make 
the savings of the people available to the federal government, 
but in addition they avoid the guilt of becoming factors in the 
further increase of prices and of aiding the process of inflation 
through the issue of additional securities. 

There exists on the part of many some hesitation to co-operate 
without reserve in this effort of saving, because they fear that 
consistent saving and curtailment of credit may create great hard- 
ships and subject many people to the cruelties of unemployment. 
I am profoundly convinced that we have no right to let this 
thought prevent us from going the full length in our drive for 
economies. When we have under serious contemplation the with- 
drawal from peaceful occupations of between two and five million 
men at a time when the country is in such urgent need of such 
immense quantities of goods that our mind is not capable of pic- 
turing them, and when it needs these goods with the least possible 
delay, fear of serious unemployment need not be entertained. It 
is true that for some time to come there must be a continuous 
shifting of men and women from one occupation to another. 
When there is a shortage of thousands of carpenters in the ship- 
yards, farm hands, who are generally trained to tinker in all kinds 
of arts and crafts, will be drawn into these yards and their places 
in turn will be filled by other classes of day laborers. If the 
women should decide, as I trust they will, to spend less than in 
the past upon all kinds of fineries, some girls may lose their places 
as dressmakers and seamstresses, but, as a result, there will be 



90 CONFERENCE ON WAR ECONOMY [Vol. VIII 

found large numbers of them running elevators, or doing clerical 
work, or serving in munition factories. No doubt there will be 
temporary and unavoidable hardships connected with this shifting 
process, but this is one of many sacrifices that we must be willing 
to bear. Organized labor realizes these conditions and the mem- 
bers of the Capital Issues Committee who met with representatives 
of their organization were deeply impressed by their patriotic, 
courageous and statesman-like point of view. At the same time 
the Department of Labor is trying its utmost to complete its 
machinery for directing and assisting in this readjustment of occu- 
pations while other agencies of the government are devoting them- 
selves to the task of guiding industries away from the production 
of less essential to essential goods. 

Nothing can be more detrimental to the successful accomplish- 
ment of our industrial war program than the effort to leave undis- 
turbed the industries that cater to the extravagant tastes of all 
classes. The argument that it is necessary to keep on selling lux- 
uries in order to finance the war is too preposterous to be con- 
sidered seriously. In times of war we do well to remember the 
wise expression of old Diogenes, who said: "How many things 
there are in the world that Diogenes can do without." That applies 
to the life of the individual as well as the community as a whole. 
The people of the United States who stand ready to give their all 
to win this war will cheerfully forego unnecessary comforts and 
luxuries when once they fully grasp the real significance of econ- 
omy in this emergency. If they have not yet begun to do their 
full duty in saving, it is only because they have not had it suffi- 
ciently impressed upon their minds that saving is not a petty 
matter but that there is glory in saving, that saving has an imme- 
diate bearing upon the question of victory and defeat and of life 
and death, and that at this time it is the biggest contribution the 
civilian population can make. We must train ourselves to visual- 
ize the cumulative result of individual and communal thrift, in the 
light of which the smallest contribution assumes its true impor- 
tance. It is not difficult to wear old clothes instead of ordering 
new ones, when we impress it upon our minds : that (our factories 
being busy day and night in producing the things needed for the 
war) there are available only few goods which can be sent to 
Argentina in payment for her wool; that we have no ships to 
spare, nor gold; that we — that is, the group of Allied powers — 



No. 1] CAPITAL ISSUES AND WAR FINANCING 91 

need Argentina's wheat and meat and wool, or Chile's nitrates or 
Peru's copper; that through our being short of goods to sell to 
neutral countries, the value of Allied currencies as reflected by the 
exchange rates in neutral countries has depreciated so seriously 
that we can continue extensive purchases in neutral countries only 
to the extent that they will grant us loans to cover our debit bal- 
ances. It is true that most of those neutral countries are as 
anxious to sell their goods as we are to secure them, or even more 
so, and that, therefore, these neutrals are as vitally interested 
as we in bringing Allied exchanges back more nearly to normal 
rates and in granting us credits that will enable us to buy and pay 
for their goods. But in the nature of things, these credits must 
be limited by the amounts that these countries can afford to loan 
and, as far as short loans are concerned, by the maximum amount 
which we may safely obligate ourselves to release in gold to them 
upon the conclusion of peace. 

It is impossible within the limits of this address to give a full 
presentation of the many phases in this question of foreign ex- 
change. Suffice it to say in this connection that in saving goods 
we accomplish three things — first, we decrease the volume of 
things we must import ; second, we increase the volume of things 
we may export in payment of imports; and finally, even though 
present lack of transportation facilities may serve to prevent us 
from shipping all available goods, we nevertheless accumulate a 
most valuable reserve stock of raw materials and finished products. 
If Joseph could return today and foretell the future to Pharaoh, he 
would predict that at the end of this war there will be a great 
famine of raw materials and he would urge those in power to 
acquire and store up whatever surplus of foodstuffs, cotton or 
other similar raw materials the country might be able to save and 
accumulate. As far as our own position is concerned, such 
reserves of goods will prove of the greatest value during the war 
in adjusting our foreign balances, and a most effective protection 
for the coming period of the after-the-war trade struggle. Who- 
ever controls the raw materials will hold the key to commerce and 
finance, not only because he who can sell goods need not send gold, 
but also because control of raw materials will give an invaluable 
advantage to the manufacturer competing in world markets. Our 
gold reserve at this time is the financial backbone of the Allied 
cause ; let us add to our "gold" reserve a "goods" reserve. Maybe 



92 CONFERENCE ON WAR ECONOMY [Vol. VIII 

that Joseph would add this further admonition : that the necessity 
for saving will not end immediately upon the conclusion of peace 
but that for years thereafter thrift will remain a national requisite 
to be practised as scientifically and as cheerfully as was our far- 
famed extravagance in the past. 

It is impossible to do justice to the topic allotted to me without 
demonstrating as vividly and as convincingly as possible the all- 
importance of individual and communal thrift and economy for 
the present and future welfare of the country. The bigger the 
lines on which we conceive this problem, the easier will it be to 
arouse the entire country to support the United States in the 
accomplishment of its difficult task. 

Owing exclusively to the iron pressure of necessity caused by 
the British blockade, and to the consequent enforcement of a rigid 
system of rationing, Germany has been able to perfect a plan of 
complete industrial mobilization and of the greatest possible indi- 
vidual and collective thrift and economy. If it is true that "In- 
telligence is a question of priority," we may say with equal force 
that "Priority is a question of intelligence." Shall we be able to 
see soon enough in what respects we must give the government 
the right of way? Shall we be able to see our duty clearly enough 
to perfect this great plan of conserving our natural resources by 
creating our own voluntary blockade around extravagance and 
waste ? Can we co-ordinate by voluntary agreement all the inde- 
pendent forces of state and municipal administrations, so as to 
secure the efficiency of autocracy under the flag of democracy? 
It is a difficult task, but one that is beautiful and inspiring, and 
when once our people grasp its full meaning, they will never let 
go until it is accomplished. 

Nothing will have a stronger effect in molding their minds than 
the sight of their own authorities restricting public expenditure, 
and denying public comfort, for the greater benefit of the nation. 
Individuals will save in the small things when governments dem- 
onstrate their determination to save in the big ones. If governors 
and mayors and those who share with them the responsibility of 
administering our commonwealth, instead of permitting them- 
selves to be placed on the defensive by apologizing for savings 
effected by them, will make themselves bold and enthusiastic lead- 
ers in this movement, inviting the people to co-operate with them 



No. 1J CAPITAL ISSUES AND WAR FINANCING 93 

to the utmost of their ability, we shall have taken a long stride 
toward winning the war. 

CAPITAL ISSUES COMMITTEE OF THE FEDERAL RESERVE 
BOARD— SUMMARY OF ISSUES ACTED UPON JANUARY 12 
TO MAY 17, 1918. 

Public 

Municipal Utility Industrial Total 

Amount considered. .. .$86,878,512 $172,069,605 $219,510,269 $478,458,386 

Amount disapproved... 19,791,665 6,000,000 39,900,000 65,691,665 

Aggregate approved.. . .$67,086,847 $166,069,605 $179,610,269 $412,766,721 
Less "refunding" 21,392,312 125,860,284 111,411,900 258,664,496 

Aggregate new issues. .$45,694,534 $40,209,321 $68,198,369 $154,102,224 
New issues last year 

same period 108,952,865 107,504,075 287,754,684 504,211,624 

Analysis of new issues 

approved : 
Amount original applns.$65,486,199 $46,209,321 $108,098,369 $219,793,889 
Amount approved 45,694,534 40,209,321 68,198,369 154,102,224 

Curtailment effected. . .$19,791,665 $6,000,000 $39,900,000 $65,691,665 
Analysis of applications 
informally discouraged : 

Number 8 3 6 17 

Amount $8,915,000 $7,360,000 $3,590,000 $19,865,000 



THE PAY-AS-YOU-GO POLICY IN NEW YORK CITY 1 

CHARLES L. CRAIG 
Controller of the City of New York 

THE so-called "Pay-as-you-go" policy for the City of 
New York, which has been practically abolished by recent 
legislation, can be understood only in the light of con- 
ditions existing prior to its adoption. This policy was first put 
into effect by resolutions adopted by the Board of Estimate and 
Apportionment in September 1914, and was afterwards made 
mandatory by an act of the legislature, passed in the early part 
of 1916. 

On May 13, 1918, Governor Whitman signed a bill, which then 
became a law, suspending the operation of the previous statute 
for the period of the war and for one year thereafter. For all 
practical purposes this may be regarded as its total repeal. 

From the earliest times it has been the policy of the City of 
New York to meet the expense of public improvements of an 
enduring character, such as public schools, hospitals, engine houses, 
police stations, correctional institutions, courts, water supply, 
docks and rapid transit, by the proceeds of the sale of long-term 
bonds, commonly known as corporate stock. The longest period 
for which such corporate stock has been permitted to be issued is 
fifty years. Provision is made for the payment of interest on 
such corporate stock, and its redemption at maturity, by including 
in the annual tax levy of each year a sum sufficient to pay the 
interest for that year and to provide a sinking fund which at 
maturity shall equal the par value of the corporate stock. In this 
manner the cost of such public improvements of an enduring 
character was spread over the life of the improvement, and those 
who enjoyed the benefits from year to year made payment there- 
for in the tax levy of such year. 

In theory, at least, this was a just apportionment of the costs 
and benefits of such public improvements. The difficulty with 
this principle in actual practice was that long-term corporate stock 



1 Read at the National Conference on War Economy, June 6, 1918. 



No. 1] PAY-AS-YOU-GO POLICY IN NEW YORK 95 

was issued for improvements which, in many instances, were of 
very brief duration. It has been conventional for writers upon this 
subject to accuse Tammany administrations of having bought per- 
ishable supplies with the proceeds of fifty-year corporate stock. 
The accusation has been made in such form as to imply that the 
practice in question was peculiar to Tammany administrations. 
Such, however, is not the case. Those who have proceeded in this 
manner are found in every administration, of whatever party or 
combination of parties it may consist. Under fusion or reform 
administrations, material of the most perishable and unenduring 
character has been acquired with the proceeds of fifty-year cor- 
porate stock. As late as the 17th of April, 1914, by unanimous 
vote of the fusion Board of Estimate and Apportionment, fifty- 
year corporate stock was appropriated, the proceeds to be used for 
the removal of piles and foundations of the "Old Iron Pier" and 
for the removal of other piers and jetties from the beach fronting 
Seaside Park at Coney Island. This offense against the principles 
of sound finance was not actually confined to the use of fifty-year 
corporate stock for this purpose, but the appropriation was so 
diverted that it was substantially exhausted, leaving the principal 
work unfinished. The consequence was that the present Board 
of Estimate and Apportionment four years later had to make an 
additional appropriation to do the work in question, the cost of 
which was met from a budgetary item. 

Under the Low administration, horses, horse collars, cans and 
can carriers and like paraphernalia for the use of the street clean- 
ing department, was purchased with the proceeds of long term 
corporate stock running mostly for forty years. This was for a 
ten years longer maturity than had been authorized by any prior 
administration. This practice was wholly discontinued in the 
second McClellan administration. For many years it was the 
practice in the dock department to meet the ordinary expenses of 
administration, maintenance and operation by the proceeds of 
long-term corporate stock. This practice also was discontinued in 
the second McClellan administration and a charter amendment 
was procured making it unlawful. During the Low administra- 
tion a large amount of long-term corporate stock, running mostly 
for forty years, was authorized for the purpose of repaving the 
streets of the city. It is needless to say that the average duration 
of any pavement is substantially less than forty years. At the 



96 CONFERENCE ON WAR ECONOMY [Vol. VIII 

present time about $58,000,000 of corporate stock of the City of 
New York issued for repaying is outstanding, practically all of 
which runs for forty or fifty years. In the Gaynor administration 
this practice was abandoned, and since that time corporate stock 
for repaying has not been issued for a greater period than ten 
years. 

The extent of such practices and the constant criticism thereof, 
usually aimed at Tammany administrations as though they were 
the sole offenders, when in fact they have established reforms, 
must have materially affected the credit of the City of New York. 
When, therefore, the enormous issues of corporate stock necessi- 
tated for the Catskill water supply and the dual subway system 
were pressed upon the market from year to year, it was inevita- 
ble that a large portion of such sales should be undigested and 
the price materially affected. This has been reflected in the ad- 
vancing interest rate prior to the outbreak of the present war in 
1914, and also in a constantly lower level of prices for New York 
city corporate stock. These were some of the elements of the 
situation that existed when the so-called "Pay-as-you-go" policy 
was adopted in September 1914. 

In its full scope and operation that policy prohibited the use 
of corporate stock for any period whatever for any of the various 
classes of public improvements that were not of a revenue-pro- 
ducing character. The pay-as-you-go policy implied that all such 
public improvements of whatever duration and for whatever pur- 
pose, if non-revenue-producing, were to be paid for by the taxes 
raised in the year in which the improvement was made. 

The policy was put into effect by stages. In the first stage it 
was provided that such improvements authorized thereafter in 
1914 and in 1915 should be financed one-quarter from the tax 
levy and three-quarters from fifteen-year serial bonds. Those 
authorized in 1916 were to be paid one-half from tax levy and 
one-half from serial bonds. Those authorized in 1917 were to be 
paid three-quarters from tax levy and one-quarter from fifteen- 
year serial bonds. Finally, all such improvements authorized after 
January 1, 1918, were to be paid out of the taxes of the year in 
which they were made. 

Such was the situation that confronted the present administra- 
tion in New York city on January 1, 1918. It was found in 
practice that the pay-as-you-go principle, as thus applied, had a 



No. 1] PAY-AS-YOU-GO POLICY IN NEW YORK 97 

marked tendency to increase the tax rate in order to meet the 
cost of necessary public improvements of a non-revenue-produc- 
ing character. The city was confronted with an unfinished sub- 
way system, which, if the work had progressed according to the 
original program, with negligible exceptions, would have been 
completed and in operation. A vast amount of work and expense 
was required to complete the dual subway system. The carrying 
charges for interest and amortization upon the outlays required, 
and the deficits which the city is compelled to meet, were making 
a constantly increasing drain upon the city's resources and a ma- 
terial addition to its tax rate. In order for the city to have suffi- 
cient borrowing capacity to embark upon the dual subway enter- 
prise, and to keep the tax rate within constitutional limits, there 
was resort to the device of increasing the assessed valuations of 
real estate all over the City of New York. This increase was car- 
ried to an extent that has evoked the criticism that in many 
instances the assessed valuation is greatly in excess of the actual 
value. The president of the department of taxes and assessments 
under the preceding administration officially stated to the state 
tax commissioners, representing the State Board of Equalization 
at Albany, that the assessments in the Borough of Manhattan in 
1916 averaged 106% of the sales value of property sold, against 
which the assessments could be checked. Until such time 
as the population of the undeveloped portions of Brooklyn, 
Queens and Bronx boroughs had increased to a point where there 
was sufficient traffic to support the newly constructed dual sub- 
way lines, there was a constantly increasing peril that the assessed 
valuations in those boroughs would suffer a decrease from the 
lack of such operation and settlement. 

To diminish the deficits that the city has to meet under the dual 
subway operation, it is necessary that the population of these three 
boroughs in particular be speedily increased so as to provide reve- 
nues for the new subway lines. Any increase in the tax rate in 
those boroughs was a distinct check upon private improvements 
and increase in population; and operated to defeat the objective 
that the city must attain to carry the dual subway system. The 
tax rate in Queens for 1918 was $2.56, except for a special act of 
the legislature which became a law the day before the rate was 
fixed and permitted a part of the tax to be deferred to a later year, 
so that the actual rate for 1918 is $2.41. 



98 CONFERENCE ON WAR ECONOMY [Vol. VIII 

The mounting rate of taxation due to the operation of the pay- 
as-you-go policy manifested two serious consequences. First, it 
repelled improvements. No sensible business man would locate a 
manufacturing plant or other industry subject to such a rate, 
especially when by a slight shift in location he could either be 
entirely outside the City of New York or in an adjoining state. 
Second, the mounting tax burden superinduced an increased num- 
ber of mortgage foreclosure and tax lien sales. Property owners 
were unable to bear the additional strain, particularly under war 
conditions. As the number of such forced sales increased, market 
valuations inevitably declined. Indeed, as a matter of strict legal 
right, other property owners would be entitled to have their assess- 
ments reduced to the level of market values thus made. Thus 
the city might easily be forced to exceed its debt limit, without 
any increase in its indebtedness, because of the reduction in 
assessed values of real estate. Moreover, large appropriations 
had been made, particularly for educational purposes, which the 
pay-as-you-go law made practically unavailable. This was due 
to the circumstance that the purposes for which such appropria- 
tions were originally made had been modified by the educational 
authorities. But the appropriations could not be modified, because 
if the old appropriations were rescinded, a new appropriation 
could not be made after January 1, 1918, except upon the pay- 
as-you-go basis, or to be met 100% out of current taxes. 
About $12,000,000 of appropriations previously made for the 
department of education were thus affected and rendered prac- 
tically unavailable. This condition, if continued, would greatly 
aggravate congestion in public schools and the part-time evil. 
Moreover, we must reckon with the ever increasing burdens of 
the present war and the direct state tax. 

By way of analogy it may be said that if the federal govern- 
ment met all of the expenses of the present war by taxation with- 
out resorting to the sale of liberty bonds, we should have the pay- 
as-you-go policy as applied to the war ; and every person who now 
holds a liberty bond would instead be the possessor of a tax 
receipt. 

Under such circumstances, the present controller of the City 
of New York prepared and had introduced into the legislature a 
bill to repeal the pay-as-you-go act passed in 1916, and to substi- 
tute therefor what he considers the correct pay-as-you-go prin- 



No. 1] PAY-AS-YOU-GO POLICY IN NEW YORK 99 

ciple. This principle is that the pay-as-you-go policy is applicable 
alike to revenue-producing as well as non-revenue-producing im- 
provements; and that the cost of all such improvements of an 
enduring character should be met by corporate stock or serial 
bonds, the maturity of which can in no event exceed the normal 
life of the improvement paid for thereby. The cost of such 
improvements is contributed by each year's taxpayers who enjoy 
the benefits thereof and whose taxes provide for the interest for 
such year, and, if a serial bond, for the instalment thereof due 
that year, and, if a sinking-fund bond, for the proper contribution 
to pay it at maturity. 

No reasonable distinction can be made between revenue-pro- 
ducing and non-revenue-producing improvements in the applica- 
tion of this principle. The bill in question was drawn after 
extended conferences with those familiar with the subject, many 
of whom had been interested in the adoption of the prior policy. 
In order to avoid the excesses from vicious financing of earlier 
days, the bill expressed the duration for which corporate stock 
for various purposes should be issued. For example, for the 
acquisition of real estate, water supply, rapid transit and like 
improvements, it was very generally conceded that fifty years was 
proper maturity. Unquestionably real estate (unless for a sea- 
side park), would endure for fifty years and ordinarily its value 
would be as great then as now. In England they are issuing 
obligations running for seventy-five years for the acquisition of 
real estate for public purposes. The reference to the kind of real 
estate that might be part of a seaside park is in relation to a large 
seaside park near Neponsit, since the acquisition of which, forty- 
seven acres have been carried away by the tide, hardly a very 
enduring piece of real estate. Part of it is now over on the 
Jersey coast. 

Corporate stock for fireproof buildings and similar improve- 
ments was limited in its duration to forty years. Other periods 
were specified for improvements of a less enduring character. 
The resolution of appropriation is required to express the dura- 
tion of the improvement and fix the maturity of the corporate 
stock authorized. As an illustration of that I might say that 
officials who have acquired the habit from former administrations 
have recommended that long-term corporate stock be issued to pay 
for window shades in one of the hospitals that is being equipped. 



100 CONFERENCE ON WAR ECONOMY [Vol. VIII 

We make them pay for these out of their budget appropriation for 
1918. This is merely an illustration of how deeply ingrained is 
the disposition to use long-term bonds for the most ephermal 
improvements. These were the reasons for the pay-as-you-go 
policy, and I think we have now discovered the correct application 
of it. 

This bill as originally prepared was in the form of an amend- 
ment to the Greater New York charter to correct the changes 
made by the pay-as-you-go act of 1916. In the course of dis- 
cussion in the legislature, it appeared that it would be more expe- 
dient to leave the charter provisions for the present as they stand 
and to change the form of the bill in question to an emergency 
act. Accordingly, the bill was slightly changed by providing a 
new title describing it as "An Act for the Relief of the City of 
New York in Financing its Obligations During the Period of the 
War, and One Year Thereafter, in Reference to the Issuance of 
Corporate Stock and Serial Bonds." It then provided that $15,- 
000,000 of such securities may be issued in any single year in 
addition to any that may be authorized under existing laws. The 
existing laws provide for the issuance of corporate stock for 
revenue-producing purposes and for special purposes, including 
rapid transit and water supply, such as the new court house and 
site, Bronx Parkway and change of grade crossings. 

I commend to you that you make an assault upon the state 
legislature of New York at its next session to repeal those special 
acts which permit bodies that are not accountable to taxpayers 
to appropriate long-term corporate stock for such purposes as the 
Bronx Parkway, practically without limit. Of course we have 
the court-house site, for which no more money can be spent, be- 
cause it is not there to spend, but that property could be made 
available for other public purposes if the court-house act were 
repealed. As the matter now stands that property is practically 
condemned to idleness until such time as the city may see fit and 
may have the funds to build a new court-house, or may abandon 
the enterprise entirely. That is a matter absolutely in the hands 
of the legislature. We got a bill through the senate this year to 
make that change so as to render the property available for war 
purposes, but the assembly smothered it for political reasons. 

The practical effect of the $15,000,000 provision is to permit 
authorizations to that extent for non-revenue-producing purposes, 



No. 1] PAY-AS-YOU-GO POLICY IN NEW YORK 101 

such as school houses, hospitals, correctional institutions, fire and 
police protection. The limitation of $15,000,000 was agreed upon 
as the minimum requirement of the City of New York after an 
exhaustive inquiry into the subject. 

The policy of the present Board of Estimate and Apportion- 
ment is not to authorize a public improvement of any kind that 
is not distinctly of a war character. There is no chance what- 
ever for any appropriations being made for the acquisition of 
new parks or the improvement and erection of buildings of any 
kind that do not distinctly and directly contribute to the success- 
ful, diligent and speedy prosecution of the war. 

This bill passed both branches of the legislature without oppo- 
sition except of a political character. This opposition was con- 
tinued before the governor to the very last moment of the thirty- 
day period. It was of a purely political character, doubtless 
intended to cripple and embarrass the present city administration 
in dealing with war conditions and caring adequately for educa- 
tional, hospital, fire and police necessities. Although Governor 
Whitman was of the same political faith as the most insistent 
opponents of the measure, he took the broader point of view, being 
convinced that the relief provided by the bill was imperatively 
required. This was the last bill that the Governor signed before 
the expiration of the thirty-day period. It became a law by his 
signature and is known as chapter 658 of the laws of 1918. 



FINANCING LOCAL GOVERNMENTS 1 

MORTIMER L. SCHIFF 
Kuhn, Loeb and Company 

ACCORDING to the most recent reports, we are now 
spending at the rate of $40,000,000 per day in round 
figures, of which about one- fourth is said to be for loans 
to our Allies. This is approximately $15,000,000,000 per year, and 
it is stated that our future requirements will be considerably 
larger than this. We are raising now about $4,000,000,000 by 
taxation, which is almost 27% of our present total expenditures 
and over 35% of those for our own account, a percentage of 
expenditures provided by taxation considerably in excess of what 
any other of the belligerents, including England, secures from 
that source. It is now proposed that even a larger percentage of 
our requirements should be raised from taxation and a figure as 
high as $8,000,000,000 has been mentioned in this connection. 
This is not the time or place to discuss the advisability or feasi- 
bility of such a program, but one thing is clear, that the amounts 
to be raised — both from taxation and by loans — are simply stu- 
pendous and that it will require the closest economy — public, cor- 
porate and individual — to make them available. Figures like 
these are impossible to visualize, and of course no such amount 
of money exists. But, as has frequently been said, it is not money 
— that is, gold and silver — which must be forthcoming, but what 
money represents — namely, labor and goods. We have pledged 
to the prosecution of the war all our resources in men and in 
money, but these are not in a form to be readily available. Both 
require mobilization, and just as the selection of men for military 
service must be made carefully to cause the minimum of disturb- 
ance to the industry of the country, care must be taken in securing 
the necessary financial support so as to make it readily forthcom- 
ing with the least possible interference with the country's ability 
to finance its business and industrial requirements. Just as there 
is a limit to the number of men who can be taken from productive 



1 Read at the National Conference on War Economy, June 6, 1918. 



No. 1] FINANCING LOCAL GOVERNMENTS 103 

industry without affecting the development of the country, so is 
there a limit to the credit we can provide without curtailing our 
normal needs. It may well be that we shall have to exceed both 
these limits and, if necessary, we must not hesitate to do so. 
Business cannot go on as usual during war time and the sooner we 
realize this, the sooner shall we make our resources available in 
their full measure for our war requirements. Thrift and economy, 
both corporate and individual, must be the rule. Even our national 
purse is not bottomless, and we must do without many things, so 
that there may be no interference with the needs of the govern- 
ment. It cannot be emphasized too strongly or repeated too often, 
that unnecessary expenditures must be avoided, so as to release 
money — and let me repeat again, that is labor and goods — for war 
purposes. The primary business of this country at the present 
time is to win the war, and that as promptly as possible. It will 
not be over until it is won and every day by which it is shortened 
means not only a saving of millions of dollars, but what is far 
more important — of the lives and health of our greatest asset, 
the young manhood of the country. No sacrifice is too great to 
accomplish this, and the least those of us who unfortunately must 
stay at home can do is so to manage our own affairs and shape 
those of the enterprises under our direction, as to make available 
the facilities which the country needs for its war program. ' This 
requires the wholehearted and unselfish co-operation of capital 
and labor, of government and business, and can be attained only 
if all work together with singleness of purpose and unity of en- 
deavor. 

Industry, for that is after all the wealth of the country, must 
be mobilized on the basis of concentrating on essentials and elimi- 
nating non-essentials. This can be done by voluntary action on 
the part of producers or of consumers, by curtailment of credit 
and by control of raw materials. Voluntary action can accomplish 
much, but it is apt to be unscientific and to a great extent hap- 
hazard in character. Curtailment of banking credit is difficult to 
enforce and a rather dangerous expedient. It is almost certain 
to work unfairly, as no general rule for its application can be laid 
down, and different localities and even different banks in the same 
locality are sure to have different opinions as to what are essen- 
tial and what non-essential requirements. Banks can do much to 
discourage unnecessary expenditures by their customers who seek 



104 CONFERENCE ON WAR ECONOMY [Vol. VIII 

credit, but it needs some authoritative body to apply effectively 
the check which the situation demands. That, it seems to me, can 
best be done by rigid control of raw materials. It avails little to 
preach economy if extravagance is encouraged by luxuries being 
readily procurable. There is little use, for instance, in urging a 
municipality not to enlarge and develop its park systems at the 
present time if contractors are ready — yes, even anxious — to 
undertake the work and are permitted to secure the labor and 
materials to do so. All the resources of the nation must be hus- 
banded with the greatest care to enable the country to bear its full 
part in the prosecution of the war, and there should be no un- 
necessary bidding by one enterprise against another and surely 
not by different departments or agencies of the government. 

There is, however, a curtailment of credit which is effective 
and which can be applied with reasonable fairness. Of course, 
there may be some hardship in particular instances, but that can 
scarcely be avoided in times like the present, and war demands 
the subordination, if need be, of the individual to the common 
good. The curtailment of credit to which I refer is that by gov- 
ernment control of capital issues. We have now an official body 
charged with this duty and upon its wise handling of the applica- 
tions which come before it will depend to a great degree the extent 
to which expenditures for non-essential purposes can be checked. 
While the Capital Issues Committee has no power to enforce its 
mandates and while notwithstanding its disapproval securities 
may be legally issued, in effect its decisions will be controlling, as 
its approval will be necessary to make an issue salable. The 
committee can view the country as a whole and determine whether 
or not it is advisable that a certain expenditure should be made 
and whether even though important for its particular locality, 
other requirements of greater national interest should not have the 
first call upon the investment market. 

I speak of the investment market, but it appears to me extremely 
doubtful whether as the war goes on there will be a market to any 
extent for any new issues except government bonds, or, if so, 
whether the offering of other securities should be permitted. In 
order to make available the enormous sums which our participa- 
tion in the war requires, the government must monopolize, if 
necessary, the investment market; and even state and municipal 
bonds, attractive as they may be to the investor on account of their 
exemption from taxation, must give way to the federal necessi- 



No. 1] FINANCING LOCAL GOVERNMENTS 105 

ties. It may be said that other borrowers can succeed in tempting 
money out of the pockets of the people by the attractiveness of the 
terms they may offer, but even if this is possible, it should not be 
permitted in the interest of the country at large. The needs of 
the nation must be paramount. As a matter of fact, with govern- 
ment loans for large amounts absorbing the savings of the people, 
with provision having to be made for large tax payments, to say 
nothing of the absorption of funds by the Red Cross, Y. M. C. A. 
and other war activities, which must and should be supported, the 
financial exhaustion is apt to be such as to prevent the successful 
placing of larger amounts of other than government securities. It 
follows, therefore, that in order to avoid the competition of other 
securities more attractive to investors and to meet the needs of 
those unable to finance themselves, even if they were permitted 
to do so, the national treasury must provide either directly or indi- 
rectly the funds for the requirements of industry and of states 
and municipalities for refunding and such absolutely necessary 
additions, betterments and improvements as are imperatively 
needed in the national interest and cannot be postponed. For this 
we have the War Finance Corporation with its resources of 
$3,500,000,000, and the revolving fund of $500,000,000 provided 
in the Railway Act. Great care must be taken how these facilities 
are utilized, and their use must be restricted to what is absolutely 
essential for the prosecution of the war and for the maintenance 
of the credit of solvent public and private enterprises. 

We are at war, and everything must be considered with that 
basic fact in mind. We are in it for no selfish purposes, for no 
material gains, and fighting as we are for high ideals, we must 
take particular care that no selfish interest at home be permitted 
to interfere with what our armies need abroad. As Mr. Bonar 
Law, the British chancellor of the exchequer, has well said : "The 
war has become largely a question of nerves, endurance and stay- 
ing power." These are grave words and are to us, too, of deep sig- 
nificance. They point our duty clearly. We must harden our 
nerves, we must fortify our endurance and, to a great extent, it 
is this country which must finally provide the staying power. 
That means men and money without stint. We must make every 
sacrifice of our own comfort, of our own desires, to accomplish 
this and thus prove to the world that this is a united country, that 
democracy is efficient, effective and responsive and that the pledge 
of all our resources has not been empty words. 



THE HISTORY OF THE PAY-AS-YOU-GO POLICY* 

Arthur M. Anderson, J, P. Morgan & Company : The remarks which 
Controller Craig has made about the "Pay-as-you-go" policy in New York 
city take me back very vividly to the conditions prevailing at the time the 
"Pay-as-you-go" policy was instituted. In October 1914, three months after 
the outbreak of the European War, the financial world was, so to speak, 
standing on its head. The City of New York, in accordance with its prac- 
tice for a series of years, had borrowed quite extensively on short-term 
paper. A part of this borrowing, in fact about $80,000,000 of it, was repre- 
sented by obligations payable in London and in Paris. Under normal cir- 
cumstances these maturities would have been met by purchases of exchange, 
but, due to the extreme confusion in international finance, exchange was 
almost unobtainable, and what little dealings took place were far above 
the normal par of exchange. The quotations, however, really meant noth- 
ing, because exchange was not available in an amount sufficient to cover 
the city's obligations. 

The controller set forth the situation in great detail to some of his bank- 
ing friends and a syndicate was organized to purchase $100,000,000 of 
New York city bonds running for one, two and three years, bearing 6 per 
cent interest. Participation in the syndicate was pro-rated over the bank- 
ing institutions at a fixed ratio of about 4 per cent of the net deposits of 
each institution, and you will be interested to know that of the 128 com- 
mercial banking institutions in Greater New York all but four were so 
much interested in the credit of the city and so willing to protect it in 
times of stress that they agreed to purchase their pro-rata share of bonds 
and make a payment therefor to the extent of about 80 per cent, if called 
upon, in gold, the gold to be shipped to Ottawa for the credit of the Bank 
of England to create deposits in London upon which the city could rely 
in meeting its indebtedness abroad. The value to the city of this agree- 
ment of the banks to pay in gold if required was measured by the premium 
on the pound sterling which at the time of this agreement was in the 
neighborhood of 4 per cent, so that the possible 2 per cent profit to the 
syndicate on the exchange operation (beyond which point all profit was to 
accrue to the city), was about one-half what any one of the institutions 
could have made by shipping its own gold to Ottawa and selling bills on 
London against deposits so created. 

One reason for the demoralization in the exchange market at this time 
was the general knowledge that New York city was obligated for very 
large amounts abroad, and the psychological effect of the formation of a 
syndicate to supply gold if necessary to meet the city's debt in London 
was immediate. Of the $80,000,000 which the banks agreed to furnish in 
gold, if required, there was called from them about $35,000,000. The 



1 Discussion at the National Conference on War Economy, June 6, 1918. 



No. 1] HISTORY OF THE PAY-AS-YOU-GO POLICY 107 

balance was furnished either in foreign exchange which the banks had 
the right to supply, in lieu of gold, or, when the exchange market had 
again resumed a semi-normal basis of operation, by clearing-house funds. 
The City of New York received back from the operations of the syndicate 
over half a million dollars, and the distribution of notes to investors was 
an overwhelming success. In short, a very dangerous situation was met 
by courageous and immediate action on the part both of the city and of 
the bankers of New York city. 

At the time the negotiations between the controller and the bankers 
were undertaken, the, market had indicated that the bonds of the city 
were not so eagerly sought as had been the case in earlier years. While 
all municipal bonds had declined in selling price as measured by their 
annual yield during the ten years from 1904 to 1914, the decline in prices 
for New York city bonds was considerably more pronounced than in the 
average price of the bonds of about twenty cities whose obligations are 
used by statisticians in charting market movements. 

The greater extent of the decline in New York city bonds was not 
due to any question as to the safety of New York city's 1 obligations, but 
the city had put out more bonds than the market wanted to absorb; in 
other words, it had reached more or less of a point of saturation. From 
1904 to 1914 inclusive the city marketed publicly a total of $681,800,000 
bonds, which represented a ratio varying from 10 per cent to over 20 per 
cent of all the municipal financing in the country during that period. This 
seemed too large a share for any one municipality to absorb without some 
effect on quotations and the market prices reflected this fact. It is true 
that the city's expenditures were in large measure along constructive lines 
— the building of the great subway system, the enlargement of the water 
supply facilities and the construction of docks — but the purposes for which 
the bonds were being put out had nothing to do with the effect on the 
market price. The city's debt was suffering from growing pains. 

In addition to the great amount of bonds issued for purposes such as 
water supply, rapid transit and docks, there was a large volume of debt cre- 
ated for other purposes, the thousand and one things that go into the plant 
of a great municipality like New York — schools, parks, museums, streets, 
fire houses, police stations and the like, the total of which in the years 
1904-1914 inclusive, was no less than $386,000,000. This sum of $386,- 
000,000 borrowed for non-revenue-producing purposes is an enormous sum 
of money and it seems particularly so in comparison with what has been 
spent elsewhere. The city of London appears to me to be possibly the 
best city to use for purposes of comparison, although, naturally, the differ- 
ent practices on the two sides of the Atlantic make any such comparison 
difficult as to specific points. The London County Council corresponds 
somewhat to the Greater City of New York in general administrative 
powers and the area does not vary greatly in population. Since 1856 — 
over sixty years — the total amounts of money raised and applied by the 
London County Council have been about $545,000,000 and, of this amount, 
about $115,000,000 has been repaid, leaving an existing gross debt of say 
$430,000,000, of which the sinking fund and other accounts applicable to 



108 CONFERENCE ON WAR ECONOMY [Vol. VIII 

the redemption of debt hold about $175,000,000, leaving a little over 
$250,000,000 in debt outstanding as of March 31, 1916. This is debt out- 
standing for all purposes, revenue-producing and non-revenue-producing, 
and represents an existing debt of a little over $50 per capita. It com- 
pares with over $1,000,000,000 of New York city outstanding debt in the 
hands of the public, equivalent to over $175 per capita. One might expect 
that with this relatively low debt the tax rate of London would be pro- 
portionately higher than that of New York city, but while the basis of 
assessing taxes in London is at variance with that followed in this coun- 
try, the tax rate in London in the year 1916-1917 figures out about 1.6 per 
cent of the estimated capital value of the real estate and not much 
over 1% of the estimated value of all property in London, including per- 
sonal property. This is considerably below the present tax rate of New 
York city, which is over 2%, and also considerably below what the rate 
has been in any one of the last few years. I understand that in London 
the only increase in taxes in the last ten years has been due to expendi- 
tures for educational purposes. 

Moreover, in the London budget of 1917 the interest charges were esti- 
mated at approximately one-eighth of the city's total expenditures and an 
amount slightly larger than one-eighth was devoted to redemption, making 
a total of a little over one-quarter of the budget devoted to the service 
of the debt. In New York city the total debt service in 1917 was approx- 
imately 29% of the city's revenue, but it was divided between 21% for 
interest and only 8% for retirement of principal. 

It is true that London has not gone so far as New York in municipal 
undertakings. Only about one-fifth as much debt has been issued for 
revenue-producing undertakings as for welfare, education, health, streets 
and such purposes. The city owns tramways, but not the subways 
nor the water supply, and it has adopted a housing scheme. In some of 
the other English cities, however, much the greater part of the issuance 
of debt has been for purposes which are self-supporting. In Manchester 
and Sheffield about 66% of the debt outstanding represents revenue-pro- 
ducing undertakings ; in Liverpool, nearly 70% ; in Bristol, about 80%. 

With regard to the $386,000,000 which New York city borrowed from 
1904 to 1914 inclusive, however, a large part of the amount was expended 
for purposes directly connected with the public welfare, health and educa- 
tion, and no one would contemplate any reductions in expenditures for such 
purposes. But there were large expenditures of other characters during 
this period, and while I have not the figures showing the detail of this 
$386,000,000 between 1904 and 1914, the reports of the controller indicate 
that during the years 1908-1917, inclusive, bonds were issued for what 
might be termed luxuries, as follows : 

Libraries and sites $6,200,000 

City parks and places 13,400,000 

Public buildings, except schools and libraries.. 21,500,000 

New Municipal Building 17,100,000 

New County Court House 11,400,000 

Expenditures of this sort, while desirable in themselves, had no small part 



No. ij HISTORY OF THE PAY-AS-YOU-GO POLICY 109 

in increasing the city's debt to the figure which was the subject of discus- 
sion in 1914. 

The officers of the city, despite the fact that for some time they had 
discontinued the practice of paying for non-permanent improvements out 
of the proceeds of long-term bonds, and since 1911 had limited the life 
of bonds for repaying to a maximum of ten years, coinciding with the 
anticipated life of the pavement, felt with the bankers that further cur- 
tailment was necessary. There was substantial agreement that the pur- 
poses of such expenditures were very desirable in themselves, but the fact 
that they were not of a self-supporting nature made it appear wise to 
make them charges against current revenue, or to eliminate for the time 
being such of them as could be postponed. The city administration, after 
some two weeks of discussion, proposed an acceptable plan. This plan, 
subsequently enacted into law, provided that for a period of three years 
an increasing proportion of the cost of non-revenue-producing improve- 
ments should be paid from current revenue, until at the expiration of that 
period the total should be paid from current revenue. The mechanism 
for financing the share of the cost to be charged to current revenue was 
a one-year note, to be provided for in the city tax budget of the following 
year. The balance of the cost of such improvements was to be financed 
by a fifteen-year serial bond to be taken up as it matured in equal annual 
installments, also through the budget. This policy was adopted on two 
theories: first, that a city — like an individual — should not buy luxuries 
except such as it was able to pay for out of its current income, viz., its tax 
collections ; and second, that if the city continued to put out long-term 
bonds for purposes that might be dispensed with, the legal debt-incurring 
power, already very much reduced through large issues since consolida- 
tion, might disappear and — so to speak — hamstring the city financially. 

The policy of the city administration in adopting this course was one of 
the bravest things politically that has ever been done in New York city. 
The mayor and the controller both knew that the course which was being 
adopted would mean one of two things, or possibly both of them. First, 
a reduction in the supply of the things which the people of any city like 
to have : fine public buildings, good streets, and public facilities of the 
highest grade. Second, as the non-revenue-producing expenditures could 
not be eliminated entirely, there would be an increase in the tax rate, but 
the mayor and the controller and the members of the Board of Estimate 
were clearly of the opinion that such a change was wise in order to 
correct what had possibly been a too rapid rate of expansion in the city's 
expenditures, and the proposed plan was adopted. 

There are, naturally, at least two views on any such question, but my 
feeling is that the results to the city of the "Pay-as-you-go" policy up to 
the time of our entrance into the war were distinctly beneficial. The 
report of the chief accountant of the finance department, one of the few 
men living who understands the city's accounts and the only one able to 
fathom the city's Sinking Fund and General Fund practice, stated that 
because of the adoption of this plan the city's outstanding debt remaining 
out of that created since 1914 is $10,000,000 less than it would have been 



110 CONFERENCE ON WAR ECONOMY [Vol. VIII 

under the old fifty-year Sinking Fund plan, while the interest payments 
during the three years, 1916, 1917 and 1918 are over $500,000 less than 
they would have been under the former method of finance and, up to the 
present year, the increase in the tax rate was only nominal. 

With our entrance into the war, however, conditions changed materially. 
All calculations were upset. Lord Kitchener's statement that the war 
would last three years was decried, and a. policy which was adopted two 
months after the beginning of the European conflict could not necessarily 
stand under the changed conditions existing after over three years of 
destruction of property and increase in costs of almost everything that 
goes into the city's accounts. 

New York city is a very large business corporation, with an income and 
expenditure of over $200,000,000, about one-fifth of the federal government 
pre-war budget. Quite a little of this money goes into the purchase of 
materials and supplies, and with an increase in Dun's index price of about 
100% since the beginning of the European War, the city had the choice 
of stopping practically all expenditures, of deferring payment for some 
of them, or of raising the tax rate to a degree that would have been 
alarming. There were objections to all three courses, but such an increase 
in the city's budget as would cause a reduction in the values of real estate 
through a too sudden increase in the tax rate, involved the immediate 
risk of eliminating the city's margin for new borrowing for construction 
purposes and creating a situation which the "Pay-as-you-go" policy had 
been intended to prevent. Rather than risk the development of an un- 
healthy situation in real estate conditions, Controller Craig suggested that 
at least for the period of the war the provision requiring the city to pay 
its non-revenue-producing expenditures out of current income should be 
modified in favor of a policy which would permit the city to fund such 
expenditures over a period not longer than the life of the improvements 
created. 

This policy, while less conservative than the "Pay-as-you-go" policy 
adopted in 1914, is a great improvement on the plan which had been 
followed for years. The legislation which has been passed permitting this 
change will permit the city for the period of the war and one year after- 
ward to issue corporate stock and serial bonds up to $15,000,000 annually 
for non-revenue-producing improvements, provided they mature and are 
redeemed within the estimated life of the improvement as certified in the 
resolution authorizing it. Its estimated useful life varies from fifty years 
for property believed to be permanent, such as water supply, rapid transit 
or sewers, down to fifteen years for expenditures for machinery and ten 
years for purposes not otherwise specified. This plan of procedure follows 
the most advanced legislation on municipal financing in Massachusetts and 
New Jersey and, accepting the theory that all improvements are to be paid 
for by bonds, it represents almost an ideal policy. 

The present plan is infinitely more scientific and conservative than the 
old method of financing New York city's improvements, and is also more 
scientific, though less conservative, than the "Pay-as-you-go" policy adopted 
in 1914. It is something like the difference between the national policies 



No. 1] HISTORY OF THE PAY-AS-YOU-GO POLICY 111 

adopted by the belligerents in this war. England has been paying all of 
the interest on her debt and about 12% of her share of the actual cost of 
the war out of taxation. Germany, until recently at least, was not paying 
out of her income from taxation any of the cost of the war, nor even 
interest on her huge war debt, trusting to collect these enormous sums 
from the indemnities paid by her defeated enemies, which expectation will 
never be realized so long as we have men who can bear arms and fight. 
The United States, however, it is estimated, will pay out of taxation some- 
what over 40% of the actual cash expenditures for the first year of war, 
exclusive of the loans to our Allies, and President Wilson has intimated 
that he hoped to pay 40% of the cost of the war in this manner. 

Because we want to see New York conservative — not merely scientific, 
I hope that when conditions shall have returned to normal, it will again 
go beyond the bare amortization of non-revenue-producing improvements 
within their life, and either pay out of its income from taxation a sub- 
stantial portion of these expenditures which do not bring in revenue, or 
else go without — at least until the city valuations of property give it a 
respectable debt margin, not a mere 1% or 2% of its outstanding debt. 

THE NEED FOR A MUNICIPAL PROGRAM 1 

Howard Lee McBain, Professor of Municipal Science and Administra- 
tion, Columbia University : It is needless to dwell upon the manifest dis- 
advantages of a federal system of government in a time of unusual national 
stress. In the conduct of war there is no need that is more compelling 
than the need for centralization of authority. Especially is this true under 
the conditions of modern warfare, which affect the normal courses of labor, 
of industry, and of finance to a degree hitherto unprecedented in times of 
war. We have reached perchance only the early stage of what may prove 
to be an enormous dislocation and temporary redirection of these normal 
courses. 

Whether our present stage along this route be early or late, we have 
thus far traveled happily if, indeed, this word may be used at all in such 
connection. We have witnessed the exercise of undreamed-of powers by 
Congress ; and, with the exception of the silly contest over the draft act, 
we have been spared those judicial battles over questions of constitution- 
ality with which we in this country are so familiar. We have witnessed 
on the part of state and local governments a degree of co-operation with 
the national government that has, with few exceptions, been little short of 
marvelous. As the days of our great task unroll, the necessity for this 
co-operation will increase. It will increase, moreover, as the strain of the 
war itself becomes heavier and more personal among us, with the inevitable 
concomitant of some discontent and perhaps some additional need for 
coercion. In spite of this fact, in spite also of the large measure of legal 
autonomy which our states enjoy, and in spite of the fact that in a number 
of states our cities in turn enjoy a large measure of legal independence 



L Discussion at the National Conference on War Economy, June 6, 1918. 



112 CONFERENCE ON WAR ECONOMY [Vol. VIII 

from control by their state governments, I think we have reason to believe 
that hearty co-operation will be generally and generously given. 

What our cities need — and I direct myself especially to these important 
spending units of our government — is not coercion but a program. And 
this program should be supplied and supervised by the national govern- 
ment. 

Already, of course, the Capital Issues Committee is supplying this pro- 
gram in part. In respect to the activities of this committee I can naturally 
add little to what Mr. Warburg has so interestingly and lucidly described. 
I venture merely to express the hope that the Capital Issues Committee 
will, as I believe it should, develop far beyond its restrictive activities into 
a constructive and directional agency of great significance and value. 

I believe that it would also be wise for the national government to set 
up co-operative supervision over municipal tax; budgets. It is true that 
in the matter of budgets many cities of this country have nothing to learn 
from Congress and much that they might profitably teach. It is true also 
that no city in this country raises revenue by income taxes, now the 
principal source of national revenue; and that the national government 
does not use the general property tax, the principal source of municipal 
revenue. It is equally true, however, that, with national taxes mounting 
ever higher for the achievement of our now supreme purpose of victory 
by the sword, municipal taxes should be kept at the lowest possible point. 
The scrutinizing of innumerable municipal budgets would be an onerous 
task at best, but it would not be so onerous as many might suppose. A 
large part of our municipal expenditures are in practical effect, if not in 
law, in the nature of fixed charges. Only those items involving proposed 
extensions of service or wholly new services would need to be passed 
upon. And here again there would be the opportunity for constructive 
suggestion in the matter of activities peculiarly related to war problems 
that ought to be organized upon something approximating a national basis. 

Finally, and perhaps most important of all, the cities of the country 
ought to be utilized to the utmost in the task of demobilizing the army 
and restoring the industries of the country to a peace footing. The mag- 
nitude of this task no man can now assess. It would be no mean under- 
taking even if it were begun tomorrow ; it may be colossal beyond imagina- 
tion ere it is begun. It is in many ways far easier for a people to shift 
from a peace to a war footing than it is to reverse the action. In the one 
case there is the practical stimulus of government contracts, of govern- 
ment service, of government control; and there is spiritual stimulus of 
patriotism called to its highest opportunity for concrete expression. In 
the other, reliance must be placed largely upon individual enterprise acting 
under more or less normal economic laws. The government can dislocate 
industry for war purposes by direct action ; the government can relocate 
industry for peace purposes only by indirection. 

Now the cities of this country can be used as an important agency in 
solving the problems of the immediate after-war period. They may and 
ought to be mobilized to take their part in the work of demobilization 
and of industrial readjustment. Every city should be called upon at 



No. 1] NEED FOR A MUNICIPAL PROGRAM 113 

this time to formulate a considerable program of public work construction 
for the period following that longed-for but unknown day when peace with 
victory shall have crowned our high endeavor. Into this work at least 
a part of our returning troops and of our dislocated laborers can be 
absorbed pending the reconstruction and normalization of our disturbed 
industrial life. 

This calls for a program prepared well in advance of the eventuality. 
Public works cannot be intelligently planned and projected overnight. 
And the promotion of such a program, as well as its general guidance, 
should come from the national government. 

This will also call for large issues of municipal securities and for high 
municipal taxes in the post-war period. Even so. The national debt will 
not be paid by the signing of a treaty of peace ; and the national obligation 
toward those who have been summoned to the military and civil estab- 
lishments will not be fulfilled by return-trip tickets and honorable dis- 
charges ; nor will its obligation to those who have gone into the special- 
ized industries of war, whether from patriotic motive or because of the 
lure of higher wages, be fulfilled by leaving labor at loose ends while 
private initiative works its economic pleasure in transforming war shops 
into peace shops. 

The cities of this country, despite their autonomous powers and despite 
the autonomous powers of their states, are integral parts of the nation. 
In the matter of public works they are, in aggregate, our most important 
spending units. Their service in this connection should not be lost by 
neglect. They should be led into co-operation to this important end. 
There should be some adequate apportionment of what is expected of them. 
National subsidies in minor part payment for such enterprises might be 
well worthy of consideration. But in any case, better high municipal debts 
and taxes than widespread unemployment and distress ; better the utiliza- 
tion of these appropriate units of our government than the preservation 
of our cherished ideals of the federal system and of home rule ; and better 
anything than the unliquidation of a national obligation that grows larger 
with every dawning day of continued war. 



THE GOVERNMENT AS EMPLOYER* 

Albert Shaw, Vice-President of the Academy of Political Science, pre- 
siding: Carrying on a modern war means nothing short of the assump- 
tion by government of something like full control over the entire labor 
energy of the country. The principles involved are simple enough, but 
their application is difficult. Where a country is highly militarized in 
advance of a war, it is to a limited extent true that the undertaking is 
supported by past effort. In the main, however, war must be sustained 
out of current effort — that of workers in fields, shops, mines and transpor- 
tation, as well as that of men in the direct fighting services. Success in a 
great modern war is imperilled if it is not clearly understood that there 
must be unity of war effort on the part of the entire population, with 
government guiding and regulating at all essential points. The withdrawal 
of millions of men from ordinary pursuits not only leaves a shortage of 
labor by reason of their going to the camps, but it also creates a stupendous 
demand for labor in new fields. The equipment and munitioning of armies, 
the building of ships and support of navies — the merest suggestion is 
enough to remind every intelligent person of the vastness of the transition 
that war brings about in the labor conditions of a nation. 

Our participation in a war that compels us to co-operate with several 
European powers does not restrict or lessen the magnitude of the burden 
thrown upon American labor, but on the contrary increases it very greatly. 
The government's interest in food production, and therefore in farm labor, 
is largely due to the need of sustaining millions of people in Europe as well 
as providing for our own army and navy and our civilian workers. The gov- 
ernment's control over the mining and distribution of coal in like manner is 
the more sweeping and necessary because of shipping needs and other 
industries vital to our Allies as well as to our own war activities. Even 
where the government does not assume direct employment — which it does 
assume in the case of the railroad system — or where it does not create 
new employment and indirectly control it (as it does in the case of ship- 
building) it uses indirect means, such as its assumption of control over 
all steel production, to divert labor from one form of industry to another. 
Thus government stops the construction of steel buildings in cities, and 
reduces the automobile industry to a minimum, in order that the materials 
themselves and also the workers may be at the service of industries more 
vital to the business of prosecuting the war. 

The magnitude of war expenditures almost invariably increases the 
prices of commodities ; and government's commandeering of the output of 
mines, mills, factories and shipyards leads to price-fixing, always on liberal 



1 Addresses at the luncheon session of the National Conference on War 
Economy, June 6, 1918. 



No. 1] THE GOVERNMENT AS EMPLOYER 115 

terms. The cost of living meanwhile increases rapidly, and it becomes 
necessary to readjust money wages. The immense shifts from one form 
of employment to another, under war conditions, can best be brought about 
through the stimulus of very high wages. Nobody resists the government's 
use of the taxing power and the borrowing power; and a strong govern- 
ment like ours, commanding the resources of a rich country, can find the 
funds more rapidly than it can secure the materials and the labor that it 
needs. Speedy results are essential above all else, and these are best 
secured by according high wages to labor and paying correspondingly high 
prices for the commodities that labor produces. 

Government in war-time, then, becomes a liberal employer, high wages 
meaning more or meaning less to the laborer in accordance with the ability 
or policy of the government's financiering, as respects inflation of prices. 
Previously unutilized elements, such as the labor of women, are brought 
into service through the attraction of high wages and the stimulus of 
example. Luxurious spending is discouraged. The ordinary family has 
additional wage-earners, to take the place of those who have gone to the 
war. Thus with concentration upon the most vital things, and practice of 
the principles of thrift which government policy can find ways to promote, 
the labor shortage due to the enlistment of young men in the fighting 
services is met to a large extent. 

Government policy as respects labor in war-time is certain to have social 
consequences of a permanent kind, and these may be quite as important 
in the long run as the international adjustments brought about by the use 
of armed force. Heroic times call for swift decisions, and it is found 
possible to give immediate effect to measures in the direction of social 
progress which might otherwise have halted for a generation or two. 
Almost everything depends upon the conceptions that are in the minds of 
those who have it in their power to make these critical decisions. Thus 
if a great war be short, and its wastage and destruction not too great, there 
may be certain compensating advantages resulting from the unity of a 
nation in a period of danger, calling for intense effort and self-sacrifice. 

In a democracy, the one clear mark of progress is the average improve- 
ment of all the people — first, in what we may call "morale"; second, in 
economic condition. Morale implies intelligence, solidarity, the confident 
acceptance by a large majority of what are deemed beneficial aims and 
motives in the direction of the body politic. Morale implies the orderly 
pursuit of wise and wholesome things, the submission to just laws, the 
striving for an environment that promotes popular education and ministers 
to physical or moral health. Economic progress makes account of im- 
proved standards of living, with guaranties against the old-time menace 
of poverty, with well assured returns for labor, and with enough stability 
to make for thrift and contentment. 

When, in the emergency of a great war, government is obliged to recog- 
nize individual efficiency, and to dignify courage and manhood, there may 
well be rapid advances in real democracy. Our own government, in its class- 
ification of its citizenship, requires the services of several million young 
men for the army and navy. It thinks of them not as "cannon fodder," but 



116 CONFERENCE ON WAR ECONOMY [Vol. VIII 

as its most precious element and possession, its future rulers and leaders in 
all forms of activity. It proposes to shelter, clothe and feed them well ; it 
surrounds them with the best medical and sanitary care ; and it undertakes 
to improve them phsically and mentally before returning them to civil life. 
It provides them with life insurance, and it makes allotments to members of 
their families. In its relation to these men, the government conceives of 
itself as a wise employer, intent upon conserving and upbuilding his labor 
force by every salutary means he can discover. 

In the production of war materials, the government finds itself obliged 
to consider the problems of labor from every standpoint. Its decisions 
are all in favor of reasonable hours, the encouragement of a spirit of 
patriotism and good will among the workers, generous wages, the provision 
of comfortable housing facilities, and the safeguarding of industrial 
neighborhoods, whether those of shipbuilding or munition plants, from 
infectious disease and from the contagion of vicious resorts. 

It is obvious that the power to draft men for military service implies 
the power to draft men for the industries without which there could be no 
fighting. This power to draft labor as well as to control war industry puts 
government in a position which makes any sort of paralyzing conflict 
between labor and capital a practical impossibility. Both capital and labor 
must therefore accept the government's adjustments; and there must be no 
strikes or lockouts during war-time in any vital industry. This principle 
has been fully endorsed, and government mediation is settling all differ- 
ences and gradually standardizing labor conditions. The result is that 
while our government is carrying on international war it is establishing 
industrial peace. 

Many of the government's policies which have exhibited swiftness in 
decision and rapidity in execution have in reality been based upon long 
periods of previous study and experiment. This is true of those interest- 
ing model cities that we call "cantonments," in which many hundreds of 
thousands of soldiers will have been trained, with benefits — due to con- 
ditions and environment — that are easily shown in statistical averages. 
It is also true as regards plans for the housing of workers in the new 
industrial centers. Architects, engineers, sanitarians, industrial experts are 
all at hand, capable of giving wise direction to the expenditure of the 
millions appropriated by government for the housing of labor. 

I am strongly inclined to the view that the generous policy of govern- 
ment toward labor is a wise form of conservatism. This is illustrated in 
the remarkable fact that more than seventeen million different individuals 
were able to subscribe to the third war loan. With the practicing of thrift 
and care, it will become possible for the wage-earners to hold very consid- 
erable portions of the successive loans placed by the government, while 
the encouragement of agriculture will tend to increase the number of 
farmers and gardeners owning their own homes and lands. Private prop- 
erty widely diffused makes for stable and conservative progress in a 
democracy like ours. In former war periods, the masses of people were 
relatively the heavy tax-payers ; while at this time large business profits and 
large personal incomes are paying the bulk of the taxes. When rich men 



No. 1] THE GOVERNMENT AS EMPLOYER 117 

pay the taxes and laboring men receive interest on their bonds, the 
tendency is a healthy one for a country that believes in popular progress 
and self-government. 

Thomas B. Love, Assistant Secretary of the Treasury: The topic of 
the Government as an Employer is a peculiarly appropriate one at this hour, 
when the government of the United States is an employer on a larger basis 
than ever before in its history. It is the largest employer in the world, the 
largest employer in the history of the world, and it is not too much to say 
that there is no single element in all our great war task that is of more 
importance than wisdom and prudence and' essential justice in all of the 
phases of the nation's employment. The government at this time is the 
employer of something more than two million soldiers and sailors repre- 
senting our fighting forces, and with respect to the basis upon which this 
employment is laid I think it may be fairly said that the government is an 
employer on a better basis than ever before in its history. 

In all of the conflicts and contending opinions, since the war began, upon 
questions arising out of employment and incident to employment, there are 
some elemental facts upon which all schools of thought have agreed. An 
honest contract of employment, whether made by a government or a private 
employer, individual or corporate, and whatever the grade or character of 
the employment, must provide for a living wage ; and it is generally agreed 
that a living wage means something more than the mere cost of subsistence 
for the worker while he is at work. It must also provide for the exenses 
of living for his natural dependents, and for the expenses of living of the 
worker and his natural dependents during the hours of the day and the 
days of the week when he does not work. Further, it must provide for 
them during those periods when he is unable to work through his physical 
disability, arising from disease or injury, whether occupational or other- 
wise, or from old age; and it must include provision for the support of his 
dependents after his death so long as the conditions of dependency may 
continue. These things are essential to the living of the employe. With- 
out them life is not worth living. They are simply the fuels of service 
without which there can be no efficient service. 

Contracts guaranteeing these things may contemplate that the employe 
shall be paid a fixed periodical stipend representing the cost of his ordinary 
living, and in addition the cost of providing for the contingencies which 
may arise in the event of his disability, old age or death. Such a contract 
may contemplate that the worker will set aside and conserve the portion 
of the wage representing these contingencies, so that when they arise he 
will have the means in hand to meet them ; or, it may contemplate that he 
will provide for them through purchasing insurance protection against 
them. Another means is that the worker shall receive a fixed periodical sti- 
pend, and shall be committed to a reliance upon the voluntary contribution 
of the employer in the event of his disability or death or old age. Yet 
another would contemplate that the employer will pay the employe a fixed 
periodical stipend somewhat less than if the employe were to carry the 
risks I have described, upon the condition and with the agreement that the 



118 CONFERENCE ON WAR ECONOMY [Vol. VIII 

employer himself will undertake to make certain and definite provisions, as 
a part of the contract of employment, and as a part of the compensa- 
tion of the employe, for carrying him through periods of disability, and 
carrying his dependents in the event of his death. 

I cannot better illustrate this latter method of compensation than by ex- 
plaining briefly the basis upon which our two million and more soldiers 
and sailors are now employed by the government of the United States. In 
the War Risk Insurance Act and the other acts which fix the basis of em- 
ployment for our fighting forces, the government says to the enlisted man, 
"We will pay you a certain fixed monthly compensation. We will furnish 
your food and clothing and all medical service. If you have a wife and 
children, either or both, we will require you to make a definite allotment 
out of your monthly pay, which shall not exceed one-half your pay, and to 
this allotment the government will add an equal or greater amount as an 
allowance and pay this allowance to your family and dependents monthly 
for their support. If you have no wife or child, and have other relatives 
dependent upon you for support, and you wish to make a voluntary allot- 
ment independently for their support; or, if you have beside a wife and 
children other dependent relatives, and you wish to make an allotment in 
addition to the compulsory allotment you are required to make for the 
support of your wife and children, the government will supplement that 
voluntary allotment with an equal or greater allowance, and disburse 
those allotments and allowances to dependent relatives other than wife or 
child on a monthly basis." In this way the government agrees with the 
soldier to make a certain definite dependable provision for his wife and 
children and these other dependent relatives while he is in the service. 

It says also that if he becomes disabled or discharged on account of injury 
or disease arising in the line of duty, and not due to his own wilful mis- 
conduct, the government will pay him a certain fixed monthly compensation 
contingent in amount upon the number and personnel of his family, so 
long as his disability shall continue. If he loses his life in the line of duty 
and not as a result of his own wilful misconduct, the government will pay 
to his wife or child or widowed mother, all of them if he has them, if not, 
such as he may leave, a certain fixed monthly compensation so long as the 
widow or widowed mother remains a widow, and to the children until they 
arrive at the age of eighteen years. 

In addition to these provisions, the government declares that if he desires 
to purchase additional protection against his own. total permanent dis- 
ability, and against the loss of his breadwinning ability for his dependents 
through his death, it will provide that he may take not less than $1,000 or 
more than $10,000 of insurance, which shall be furnished him at the ordinary 
peace-time rates, less any loading for expense, and less any addition for the 
war hazard, the average rate being about $5.50 per month for a> $10,000 
policy. If the soldier is totally and permanently disabled, whether in the 
line of duty or) not, this insurance shall be payable to him in 240 equal 
monthly installments until his death, or in the event of his death before the 
total number of installments have been paid, the remainder of such install- 
ments shall be paid to his designated beneficiaries. If he dies, the total 



No. 1] THE GOVERNMENT AS EMPLOYER 119 

amount of insurance is paid to his designated beneficiaries in 240 equal 
monthly installments. 

In carrying out this provision for the soldiers, which is an essential 
element of the scheme of employment of the soldiers, the Bureau of War 
Risk Insurance, which was created by Act of Congress, approved October 
6, 1917, has written more than $18,000,000,000 of insurance, and in carry- 
ing out all these provisions for his protection and welfare has actually 
mailed to the families of our fighting men up to this date more than 
3,000,000 individual checks. This happens to be about the number of 
checks that the United States Pension Bureau issues each year to the 
beneficiaries of our pension list, representing the fighting men in all the 
wars of our country's history. In addition to the disbursements to the 
allotees of our soldiers and to their families, there have been 1,700 com- 
pensation claims paid, of which 1,096 have been on account of the death 
of soldiers, and 614 on account of their disability. These claims represent 
a monthly disbursement of $44,000, and this amount is of course constantly 
increasing with the increasing number of disability claims constantly aris- 
ing. The total amount of the money disbursed for allotments and allow- 
ances to the dependents of the soldiers is approximately $75,000,000. There 
are about 750,000 of these checks being mailed now each month. The 
number is rapidly increasing. It seems certain that within the period of 
not more than sixty days the number of checks issued each month will 
be at least a million. 

Probably the most remarkable phase of the growth and development of 
the War Risk Insurance Bureau has been in its insurance department. 
You will understand that the soldiers are permitted to take voluntarily 
not less than $1,000 nor more than $10,000 of this insurance, there being 
no element of compulsion whatever affecting their taking or not taking 
the insurance. We have at this time approximately 2,300,000 men, repre- 
senting officers and enlisted men, in the army and navy of the United 
States. I think I am quoting the most recent figures that were given out 
on that subject. Last night there were eighteen and one-half billions of 
dollars of insurance in force in the War Risk Insurance Bureau, repre- 
senting just about two and one-quarter million applications. I should say 
that that insurance probably covered 2,200,000 risks, because there are a 
few of the applications which represent more than one application for the 
same soldier. You may better visualize this growth of the War Risk 
Insurance Department during the past six months if I tell you that it has 
today in force nearly four times as much insurance as the largest private 
insurance company in the world. It has in force more than the twenty 
largest life insurance companies in the world put together. It has written 
within the past six months more insurance than all of the insurance com- 
panies, including fraternal, beneficial associations and insurance companies 
of every class, wrote in the United States for the year 1917. We have paid 
or we are paying 4,241 death claims under these insurance contracts, and 
ten total permanent disability claims, representing an average monthly dis- 
bursement of about $189,000. 

This scheme of provision for our fighting men is certainly the most 



120 CONFERENCE ON WAR ECONOMY [Vol. VIII 

liberal provision ever made by any government in the history of the world 
for its fighting forces in time of war. It has seemed to me that it repre- 
sented probably the soundest and wisest and most prudential form of 
employment ever used by any nation in time of war or in time of peace. 
May it not be that it will have an added value in that it will point the 
way to our country and to the nations of the earth for a rational and 
sound system of employment which will be mutually beneficial to society 
and to the worker for peace times as well as for war? 

Hugh Frayne, of the War Industries Board : I think this war is going 
to do more to harmonize the world, although it is a great price to pay, 
than any other thing that could have happened. One of the things that it 
is doing is to make the government an employer, the largest employer in 
the world, the most humane and generous employer. As time goes on we 
shall increasingly realize that many things that might have appeared as 
impossibilities a few months ago have become actualities and are in opera- 
tion, in order that we may meet conditions as they confront us today. 
Fifty per cent of all the money spent by the government today is spent 
in wages to those whom it employs. That applies not only to civilians but 
to the officers of the army and navy, the soldiers and sailors, men who are 
paid much less than they would receive as civilians, yet the conditions 
under which they work surpass to a very large degree those existing in 
any other government in the civilized world. 

There is a great difference of opinion regarding the government as an 
employer. Personally I am glad to see that this change has taken place. 
I am glad that the government is an employer in control of the railroads. 
There may be some little difference as to wage conditions, which is only 
natural, since a new experiment dealing with millions of money and 
millions of employes is bound not to be immediately workable. But as 
time goes on I do not doubt that the relations between the government 
and all of its employes will be most amicably adjusted, so that strikes, 
actual or threatened, and difficulties of all kinds affecting the workers and 
their employer, the government, will be entirely eliminated. 

This condition might well be taken as a pattern by employers in civil 
life. If there are any who complain that the government should not enter 
into the field as an employer, they themselves are responsible for forcing 
that condition. At this time I am sorry to say there are many who 
expect to use and exploit labor by working long hours for small wages, 
with the high cost of living such as confronts us today, and they cannot 
complain because the government, needing the services of men and women 
that this war may be not only fought but won, is not going to be an 
exploiter of labor. There will be no sweat-shop conditions, child labor 
law violations, or overworked and underpaid women workers where the 
United States government is the employer, and there will be a strict 
adherence to all labor laws, without labor disturbances. 

There are many departments of the government that, whether through 
legislation or by conciliation, have been able to reach an understanding 
with their employes. As time goes on this relation can be fully developed. 
Many complaints by employers in various sections of the country have 






No. 1] THE GOVERNMENT AS EMPLOYER 121 

come to my notice, that the government, through its direct or indirect 
contracts, had taken their employes away by offering a higher wage. 
Upon investigation it was made evident that under present conditions this 
was only a living wage, and that these people, notwithstanding the gen- 
erous amount they received upon their contracts from the government, 
expected the government to assist them in maintaining low standards, making 
it impossible for workingmen to provide decently for themselves and their 
families. The government cannot be expected to maintain a low standard. 

What has been done to meet the condition brought about by the war 
simply hastens the inevitable. The public utilities, the things that the 
government needs, should be under government control and it is now 
recognized that it would be better if other industries that are not under 
control as yet, were taken over. Then the government would be in a 
stronger position to cope with the many situations that arise as a result of 
the war and to deal with them, in my judgment, in a much more effective 
manner. 

Labor is satisfied with the government as an employer. Little differ- 
ences here and there are only small ripples on the wave. Labor will give 
to the government every ounce of strength, support and co-operation in 
the mines, the mills, the factories and the workshops, with one object in 
view — the winning of the war. It has declared that it would give its 
strength, its skill and its earnings to bring the war to a successful conclu- 
sion. But thereafter, there shall be no distinctions. This is neither a rich 
man's nor a poor man's war. It is the common cause of all the people of 
our country. Labor looks to the government of the United States not 
merely as a fair employer, but as an example of true democracy to the 
world, embodying the highest ideals in all its dealings with the people of 
our country, especially those whom it employs. 

V. Everit Macy, chairman of the Shipbuilding Labor Adjustment 
Board : The war has brought us constantly face to face with many prob- 
lems, but none that have been more complicated and far reaching: than 
the labor problem. We have taken many steps to provide for a sufficient 
supply and distribution of raw material. So far little has been done in 
that direction in regard to labor, yet our raw materials are of small value 
unless we have the skilled labor in the right place to put those materials 
to use. 

We have long been hearing much about economy, but in our use of 
labor we have been very uneconomical. The efficiency and usefulness of 
the individual have not been considered in any way, and there is no essential 
of industry in which we are shorter than in skilled labor and its proper 
distribution, and this very shortage has made us exceedingly wasteful in the 
use of labor. It has brought about a very abnormal turnover in labor, that 
is, the men have been changing from occupation to occupation, from ship- 
yard to shipyard, or from industry to industry, which has resulted in 
lessened efficiency and added expense. Possibly I could not illustrate the 
situation better than by showing you some of the problems that our ship- 
building board has had to meet in the past few months. War brings 
about revolutionary changes and one of those was the establishment of 



122 CONFERENCE ON WAR ECONOMY [Vol. VIII 

our Shipbuilding Labor Adjustment Board, created by an agreement 
between the Navy Department, the Fleet Corporation and the American 
Federation of Labor, and providing that all questions affecting hours and 
wages in the shipyards shall be submitted to this board, and that their 
decision shall be final. 

We began operations early in September, and I think it is a great point 
in favor of this way of handling these labor matters, when I say that since 
September, although during that time there were possibly 80,000 men 
employed in shipyards, and now there are 350,000, there have been no 
strikes in any of the shipyards in the country of any moment during that 
period. There have been half a dozen strikes involving possibly 500 men, 
but they have not lasted more than twenty- four hours, and when the 
leaders have told the men that this was in violation of their agreement, 
and ordered them back to work, in every instance they have gone back. 
As a rule they have gone out because they did not understand how the dis- 
putes were to be settled, or that any machinery had been provided for 
settlement. Knowing the situation, they have gone back immediately. 

There are two difficulties that stand out prominently. First, this labor 
turn-over, men shifting from yard to yard. We went out to the Pacific Coast, 
and after several weeks of investigation and public hearings, going from 
Seattle to San Francisco, we determined that the most feasible way of 
stopping this was to prevent any inducements to the men for changing 
from yard to yard. We therefore introduced a uniform scale of wages 
for the entire Pacific Coast. 

This was the first industry in which such a board was established, because 
the government is taking practically the entire output of the shipyards, and 
is paying the entire cost of any increase in wages, thereby enabling us to 
take action, and enabling the establishment of this board between two 
parties, the government and the labor unions. The yardowner was not 
taken into consideration particularly, because he does not pay the bills. It 
costs him nothing if wages change. 

This was radical, but it was not sufficiently radical. Our board was 
authorized only to establish a minimum wage. Now we find that owing 
to the shortage of labor and the large number of men still needed in the 
shipyards, our minimum wage has simply become a higher basis upon which 
to start bidding for men than formerly. The only step that seems possible 
in the present situation has been for the Fleet Corporation to say that it 
would not pay the bill if higher wage scales were paid than those provided 
by our board. But that in itself does not meet the situation, because we 
have had many instances of yardowners naturally anxious to live up to 
their contracts, who find themselves falling behind, with an insufficient 
supply of labor, and in several instances they have offered higher scales, 
paying the difference out of their own pockets. That simply creates dis- 
content in the next yard, and even if it does not produce any strike, it at 
least continues this shifting of labor from one yard to another. 

We have systematized it as far as possible by putting in one scale for 
the Atlantic Coast. That seems revolutionary in itself. The scale extends 
from Maine to Texas. When we first began on the Atlantic Coast we had 









No. 1] THE GOVERNMENT AS EMPLOYER 123 

three scales of wages, but immediately we began to hear from yardowners 
and the Fleet Corporation officials that men were leaving the two low 
points and going to the high point, so that all the yards where the scale was 
below the high point were short of men. We then made one scale for 
the entire coast. 

But the problem is far broader than that, far broader than any one 
industry. To meet it we must go further; the government and the em- 
ployers must realize this as well as the men. We must establish for 
various industries not a minimum wage or a maximum wage, but a stan- 
dard wage; and some relation must be established between various govern- 
mental departments, because we find that while we have prevented the 
shifting of labor from one shipyard to another, labor is now shifting from 
one industry to another, and from one governmental enterprise to another. 
It is not at all uncommon for us to have complaints from yardowners here 
in New York — I have in mind one particular yard in this vicinity which 
has been almost closed down because we prescribed certain hours, certain 
allowances for overtime and certain wages, and another government depart- 
ment, whose prevailing rate is different from ours, let large contracts in 
the vicinity, thereby absorbing all the men from that particular shipyard. 
Yet we cannot change to meet that local condition, because if we do, it 
means changing the scale all along the coast. We have to begin to think 
in larger terms, not in local terms or terms of our own particular industry 
or shop. We must think nationally. Many yardowners come to us and 
say, "If you will allow us to do this or that we can turn out so many 
more ships." But we reply, "How is that going to affect the yard next- 
door to you, and the yard in Philadelphia or Boston? Will this change 
produce a greater national output of tonnage, or will it be confined to your 
yard and create disturbance in other yards?" 

The next steps to take in this field are these : First, establish centralized 
federal labor employment bureaus in all important sections. Instances of 
the difficulties arising when private employers are permitted to advertise 
freely will illustrate the importance of the suggested bureaus. A certain 
shipyard advertised for 500 men, having discharged 200 the previous day. 
They may have advertised for blacksmiths to come from Oklahoma to New 
York. There was no knowledge whether they were qualified blacksmiths 
or not, but the men, who might not fit the position, traveled clear across 
the country. Another instance is that of 300 boiler makers who were sent 
to Seattle, with their expenses paid, to work in a shipyard, and they had 
not been there three weeks when a manufacturer of ice machines in St. 
Paul offered to pay their fare there in an effort to lure them to St. Paul. 
It is simply a merry-go-round. This condition could be largely eliminated 
through central employment bureaus. 

The other necessary step is to have closer co-ordination between the various 
government departments, and in addition to them, with the private em- 
ployer who has no government contract. He and the men employed by 
him, as well as those in government work, must be controlled in some 
manner. We fixed a wage on the Atlantic and Pacific Coasts which at the 
time it was fixed was a liberal wage, allowing for the full increased cost 



124 CONFERENCE ON WAR ECONOMY [Vol. VIII 

of living, a wage sufficient to attract skilled men to the shipyards, and now 
many men have left the yards because some of the automobile industries 
offered them fifteen cents an hour more than would have been permitted 
in the shipyards. For us to meet that increase in wages does not increase 
the number of coppersmiths. There are only 1400 or 1600 coppersmiths 
in the country, and if we raise our scale fifteen cents it will not create 
one more man. It would simply mean that these outside industries would 
raise their scale to one dollar. 

Unless we are all prepared to take more radical steps than we have yet 
taken, without fear of what will happen after the war, but take the neces- 
sary steps to win the war, we shall not get our full maximum output for 
war purposes. 

THE GOVERNMENT AS EMPLOYER— LABOR INFLATION 

SAM A. LEWISOHN 

IT is interesting to note that while the country has been comparatively 
prompt to see that the direction of all our material resources, whether 
raw materials or finished products, must be handled from a national 
point of view, it is only just coming to realize that as to its intangible 
resource, labor, this government must also regard itself as if it were an 
individual; whether labor is employed in so-called "private" or so-called 
"public" enterprises. Thus we have had priority in copper, steel and 
transportation, but no priority in labor. We have had government price- 
fixing in copper, steel and transportation but no fixing of standard wages 
for labor. Yet labor is the base on which all our material resources for 
war or other purposes must be built. Some of the unfortunate conditions 
outlined by Mr. Macy are due to this disparity in approach. Our tardiness 
in treating this problem as we have treated other problems is no doubt due 
to the greater delicacy of the labor problem and to the intricate political 
and social problems involved. 

Mr. Macy has given you his experience as an official member of the 
employing staff of the government. I can speak only as an unofficial 
member of that staff of the government — that is, as an officer of a "private" 
essential industry. One of our plants happens to be turning out a product 
that a division of the ordnance department has denominated as "the most 
important article now being manufactured on the war program." We 
employ approximately 1,500 men and have increased the wages of our labor 
an average of eighty per cent since 1914. This year alone we have made 
two increases of ten per cent each. The prices of our products are fixed 
by the government under the proper theory that we are merely a branch 
(unofficial of course) of the government, but on the other hand the price 
of our labor is not so fixed. A large number of plants manufacturing for 
the government have been built in the vicinity, but none are manufacturing 
any product more essential to the government than ours — many not nearly 
so essential. Members of our force are being continually enticed to these 
plants. Our force happens to form a peculiarly isolated community which 
is clannish in its habits and resents any newcomers from outside, so it is 



No. 1] THE GOVERNMENT AS EMPLOYER 125 

difficult to supplement. On the other hand, an influx of labor agents is 
causing a continual seepage from our plant. We should he glad to pay- 
almost any reasonable rate if we knew just what the ultimate rate would 
be, but there is practically no standard which we can set for ourselves and 
the question of the increased cost of living has long been passed. Thus with 
the selling price of the product fixed, there is a variable at one end and a 
constant at the other; and owing to the uncertainty of our labor cost we 
have no means of reporting to the government what our present costs are 
as a basis for a readjustment of the price so fixed. 

But the main evil is the resultant instability. It is true that the greater 
number of men who leave the plant do not, taking in all the circumstances, 
better their condition, but are merely tempted by the alluring picture 
painted by some all too competent labor agent. They may and in many 
instances do, return, merely having disturbed the continuity of their work 
and helped to increase railroad congestion. The very competency of the 
agent in question as a salesman is thus a social detriment. This unrest 
and instability, though it may be a healthy symptom in normal times, is a 
serious menace to the government's great war undertaking; for this par- 
ticular enterprise must be regarded as merely a typical branch of that 
undertaking. 

The laboring man is in no way to be blamed — he is restless and "on the 
make," but this is because the conditions artificially created are admirably 
adapted to invite this attitude. It is the reaction which urges all of us 
on to better our conditions — a creditable and healthy instinct. Of course, 
a certain percentage of the increase in wages was desirable from 
a social point of view, but now it comes to a point where we are having 
what might be termed "labor inflation." We are attempting to prevent 
inflation in other directions by our taxation system and our price fixing, 
but we have failed to prevent inflation in this most important factor of 
our industrial cost. 

The result is that our plant is meeting great difficulty in turning out our 
essential product in the quantities imperatively desired by the government. 
It is this basic labor problem that hampers us. Other problems, and there 
are many, those of us responsible for the management of the plant can 
solve and have solved, but here we are helpless in the face of a national 
problem. We have found from realistic experience that the government is 
the employer — and it alone can solve the problem. 

The remedies for the conditions described are well recognized — they are 
not only a standard rate of wage but also a priority system exercised 
through our labor exchanges. Through direct or indirect pressure we 
employers must be compelled to procure labor through these official 
agencies, and these agencies must enforce a priority system. The main 
thing is that the government shall recognize itself and be recognized as 
the real responsible employer. The problem has been placed in splendid 
hands under the direction of Mr. Felix Frankfurter, but if his efforts are 
to meet with success, we employers and employes, recognizing that we are 
merely agents of the government, must co-operate in every way and cheer- 
fully make the sacrifices which co-operation will necessarily entail. 



THE NATIONAL CONFERENCE ON WAR ECONOMY 

A REPORT BY 

R. FULTON CUTTING 

Chairman, Joint Committee on Arrangements, and 

SAMUEL McCUNE LINDSAY 

Chairman. Sub-Committee on Program 

THE Boards of Trustees of the Bureau of Municipal Re- 
search and the Academy of Political Science at a joint 
meeting, held in New York city in March, decided to 
unite in a call for a National Conference on War Economy to dis- 
cuss budgets, thrift and economy in public expenditures. It seemed 
that this was a good time to urge upon citizens everywhere the 
wisdom of public economy and the necessity for reconstructing the 
instrumentalities of state and local governments, thereby helping 
to solve the huge war-time problems of national financial policies. 
The call was issued for the Conference to meet in New York on 
June 5-6, and in addition to the active support of the two organi- 
zations mentioned, the co-operation of the National Municipal 
League was secured. The League agreed to arrange the program 
for its Twenty-sixth National Conference for Good City Gov- 
ernment in conjunction with that of the Conference on War Econ- 
omy. This also brought into affiliation the Governmental Research 
Conference, the Association of State Leagues of Municipalities, 
and other bodies of professional workers in governmental affairs 
which met with the National Municipal League. The response to 
the call was very gratifying. The governors of Connecticut, Kan- 
sas, Indiana, Illinois, Maryland, Michigan, Nebraska, Nevada, 
New Jersey, New Mexico, Ohio, Pennsylvania, Virginia and West 
Virginia notified us of the appointment of delegates, as did like- 
wise the mayors of New York city, Buffalo, Syracuse and Yon- 
kers in New York state ; Reading and Scranton in Pennsylvania ; 
Newark, New Jersey ; Salt Lake City, Utah ; and Portland, Oregon. 
Other governors and mayors appointed delegates, of whom we 
were not officially advised. Other delegates were appointed by 
the following organizations: Chamber of Commerce, Birming- 
ham, Ala. ; Oakland Chamber of Commerce, Oakland, Cal. ; Cham- 



No. 1] CONFERENCE ON WAR ECONOMY 127 

ber of Commerce, Colorado Springs, Colo. ; American Federation 
of Labor, Washington, D. C. ; Chamber of Commerce of the 
United States, Washington, D. C. ; National Federation of Fed- 
eral Employes, Washington, D. C. ; National Association of Letter 
Carriers, Washington, D. C. ; War Industries Board, Washing- 
ton, D. C. ; Washington Chamber of Commerce, Washington, 
D. C. ; Boise Commercial Club, Boise, Idaho; United Brother- 
hood of Carpenters and Joiners of North America, Indianapolis, 
Ind. ; Chicago Association of Commerce, Chicago, 111. ; Interna- 
tional Brotherhood of Electrical Workers, Springfield, 111. ; Spring- 
field Chamber of Commerce, Springfield, Mass.; Maine State 
Board of Trade, Bangor, Me. ; American Federation of Musicians, 
St. Louis, Mo. ; Chamber of Commerce, New Bern, N. C. ; Cham- 
ber of Commerce of the State of New York, New York city ; Fed- 
eral Council of Churches, New York city; National Security 
League, New York city; Real Estate Board of New York, New 
York city ; Russell Sage Foundation, New York city ; United Cloth 
Hat and Cap Makers of North America, New York city; Duffy- 
Powers Company, Rochester, N. Y. ; Staten Island Civic League, 
Staten Island, N. Y. ; Chamber of Commerce, Massillon, Ohio; 
Philadelphia Chamber of Commerce, Philadelphia, Pa.; Printing 
Pressmen and Assistants' Union Home, Rogersville, Tenn. ; Sher- 
man Chamber of Commerce, Sherman, Tex. ; Young Business 
Men's Club, Petersburg, Va. ; Richmond Civic Association, Rich- 
mond, Va. ; Chamber of Commerce, Seattle, Wash. ; Milwaukee 
Association of Commerce, Milwaukee, Wis. 

A complete list of delegates registered as members of the Con- 
ference is given at the end of this report. 

The chief object sought in the organization of the Conference 
was to focus public attention upon thrift and economy in public 
expenditures and upon instrumentalities of better management in 
the conduct of governmental enterprises — national, state and 
municipal. Interesting experiments are being made in local gov- 
ernment under the pressure of war necessity, which it was hoped 
could be studied and given wider publicity. The preservation of 
democratic institutions and the largest measure of local self-gov- 
ernment consistent with efficiency in national tasks, the elimination 
of unbusinesslike methods in public affairs in order to mobilize 
America's genius for organization — these and similar thoughts 
dominated the plans for this Conference. It was attended by 



128 CONFERENCE ON WAR ECONOMY [Vol. VIII 

financial and executive officers of cities, states and nation, as well 
as by students and writers in the field of political science. 

Four sessions were held as follows : 

I. Executive Leadership in a Democracy. The opening session 
was held in the large Horace Mann auditorium at Columbia Uni- 
versity, Wednesday evening, June 5, at eight-thirty o'clock. Mr. 
R. Fulton Cutting presided. Dr. Samuel McCune Lindsay, on 
behalf of President Nicholas Murray Butler, presented the greet- 
ings of Columbia University and read the following letter of greet- 
ing from Governor Charles S. Whitman: 

May 8, 1918. 

Mr. R. Fulton Cutting., 
509 Kent Hall, 

Columbia University, 
New York City. 

Dear Mr. Cutting: — 

I am in receipt of your letter of April thirtieth, extending an invitation 
in behalf of the New York Academy of Political Science and the Bureau 
of Municipal Research, to attend a National Conference in New York 
city, which is to be held at Columbia University on the evening of June fifth. 

I wish sincerely it were possible for me to be present at this time and 
to give an address of welcome in behalf of the State of New York, but 
unfortunately an engagement of long standing in the northern part of the 
state for that date makes it impossible for me to attend. 

I feel that this occasion offers a rare opportunity for national service, 
and I do not have to assure you of my own personal interest in the work 
of this conference. May I ask you to extend my cordial greetings and 
believe me, 

Cordially yours, 

Charles S. Whitman. 

Hon. Wm. P. Burr, Corporation Counsel of the City of New 
York, represented the Mayor of New York city, and presented the 
greetings of the city. 

The program of this session then followed in this order : 

1. Executive Leadership in a Democracy. Introductory address 
by R. Fulton Cutting, Chairman, Board of Trustees, Bureau of 
Municipal Research. 

2. Recent Efforts to Introduce Responsible Leadership in Amer- 
ican Government. Dr. F. A. Cleveland, Industrial Service and 
Equipment Company, Boston, and former Chairman, Taft Econ- 
omy and Efficiency Commission. 



No. 1] CONFERENCE ON WAR ECONOMY 129 

3. Executive Responsibility for War Economy. Hon. Frank 
O. Lowden, Governor of Illinois. 

4. Reorganization of State Government in Virginia. Col. 
LeRoy Hodges, representing Governor Westmoreland Davis of 
Virginia. 

5. Reorganization of State Government in Illinois. Charles E. 
Woodward, Esq., of Chicago. 

6. Administrative Reforms. Richard S. Childs, Secretary of 
the Short Ballot Organization. 

II. Financing Local Governments. The second session con- 
vened in the Belvedere Room at the Hotel Astor at ten-thirty a. m., 
June 6. Mr. Mortimer L. Schiff of Kuhn, Loeb and Company, 
New York city, presided, and gave an introductory address on the 
topic of the session. The other addresses were : 

1. The Pay-as-you-go Policy in New York city. Hon. Charles 
L. Craig, Controller of the City of New York. 

2. Capital Issues for State and Municipal Debts and Their Re- 
lation to War Financing. Paul M. Warburg, Vice-Governor, 
Federal Reserve Board, Washington, D. C. 

3. Discussion of the general topic of the session: Howard L. 
McBain, Eaton Professor of Municipal Science and Administra- 
tion in Columbia University; Arthur M. Anderson of the staff of 
J. P. Morgan and Co.; Benjamin C. Marsh, Secretary of the 
Farmers' National Committee on War Finance, Washington, D. C. 

III. The Government as Employer. The third session was a 
luncheon meeting in the grand ball room of the Hotel Astor at one 
o'clock, at which over four hundred persons assembled. Dr. 
Albert Shaw, editor of the Reviews of Reviews, and vice-president 
of the Academy of Political Science, presided. Addresses dealing 
with the mobilization of labor, the determination of a general labor 
policy by the government, the personnel of government service, and 
the settlement of industrial and wage disputes were made by Hon. 
Thomas B. Love, Assistant Secretary of the U. S. Treasury; 
Hugh Frayne, representing the War Industries Board, and the 
American Federation of Labor ; V. Everit Macy, Chairman, Ship- 
building Labor Adjustment Board, Washington, D. C. A paper 
was submitted by Sam A. Lewisohn of New York city, discussing 
the general topic from the point of view of the relations of the 
government and private employers. 



130 CONFERENCE ON WAR ECONOMY [Vol. VIII 

IV. The New Era in Budgets. The fourth and closing session 
of the Conference convened in the Belvedere Room of the Hotel 
Astor at three p. m. Mr. Victor Morawetz, Trustee of the Bureau 
of Municipal Research, presided, and gave an introductory address 
on The Need For a Budget. The other addresses and discussion 
were as follows : 

1. The Budget as an Instrument of Political Reform. W. F. 
Willoughby, Director of the Institute for Government Research, 
Washington, D. C. 

2. The New Jersey Budget Law. Arthur N. Pierson, Majority 
Leader, New Jersey Assembly, and Chairman, Commission for the 
Survey of Municipal Financing of New Jersey. 

3. Budget Re-organization in Illinois. Frank O. Lowden, Gov- 
ernor of Illinois. 

4. The First State Executive Budget. Emerson C. Harrington, 
Governor of Maryland. 

5. Discussion. Dr. F. A. Cleveland, Boston; Dr. Frank J. 
Goodnow, President of Johns Hopkins University, Baltimore, 
Md. ; Robert E. Dowling, representing the Real Estate Board of 
New York city. 

6. Paper read by title : The Development of the Budget in Illi- 
nois. Omar H. Wright, Director of Finance, Springfield, 111. 

The attendance at all sessions was large and representative. 
The practical suggestions and the determined patriotic spirit of 
the conference will be carried home to many communities by the 
delegates who participated therein. The Academy of Political 
Science is distributing widely the proceedings and report of the 
Conference. The Bureau of Municipal Research will endeavor to 
follow up and apply the suggestions contained in many of the 
addresses by bringing them to the attention of the executive 
officers and legislators in all parts of the country, and through the 
press will urge them upon the attention of voters and those who 
shape public policies. 



DELEGATES APPOINTED TO ATTEND THE NATIONAL CON- 
FERENCE ON WAR ECONOMY, NEW YORK, JUNE 5-6, 1918. 



Aach, William 
Adler, Emanuel D. 
Archer, R. L. 
Archibald, Alexander 
Barth, Isaac 
Bauer, Robert 
Bayne, Howard R. 
Bee, Wm. F. 
Bennett, Walter H. 
Berlet, E. J. 
Blackford, John J. 
Blair, Henry P. 
Blodgett, John W. 
Bollenbeck, Wm. J. 
Brewer, Richard 
Brown, Paul W. 
Bryan, Chester E. 
Buckman, Clarence J. 
Budish, J. M. 
Bugbee, Newton A. K. 
Callahan, Timothy F. 
Campbell, Daniel 
Casey, A. J. 

Chamberlain, Frederick S. 
Chambers, Walter E. 
Clause, W. L. 
Combs, Lester 
Conan, Mark E. 
Coplon, Charles 
Corbin, William H. 
Crosman, George L. 
Crowther, J. E. 
Creager, A. Y. 
Darsc, J. S. 
Day, Jonathan P. 
Dolph, John 
Donaldson, W. T. 
Donahey, A. V. 
Dorward, O. B. 
Doyle, Bartley J. 
Drew, John I. 



Galena, Kan. 
Milwaukee, Wis. 
Huntington, W. Va. 
Newark, N. J. 
Albuquerque, N. Mex. 
Scranton, Pa. 
New Brighton, N. Y. 
Boise, Idaho. 
New York city. 
Philadelphia, Pa. 
Yonkers, N. Y. 
Washington, D. C. 
Grand Rapids, Mich. 
Milwaukee, Wis. 
Suffolk, Va. 
St. Louis, Mo. 
Columbus, Ohio. 
Langhorne, Pa. 
New York city. 
Trenton, N. J. 
Lewiston, Me. 
Scranton, Pa. 
Scranton, Pa. 
Hartford, Conn. 
New Castle, Ind. 
Pittsburgh, Pa. 
Anthony, Kan. 
Syracuse, N. Y. 
New Bern, N. C. 
Hartford, Conn. 
Portland, Me. 
Seattle, Wash. 
Sherman, Tex. 
Charleston, W. Va. 
New York city. 
Washington, D. C. 
Columbus, Ohio. 
Columbus, Ohio. 
Reading, Pa. 
Philadelphia, Pa. 
Milwaukee, Wis. 



132 



CONFERENCE ON WAR ECONOMY 



[Vol. VIII 



Durkee, C. D. 
Eby, Clyde 
Eddy, Arthur D. 
Eglinton, A. L. 
Eisele, Edward 
Ellingson, O. J. S. 
Eno, Williams Phelps 
Ewing, Robert W. 
Featherston, D. F. 
Fischer, Otto H. 
Fuld, S. C. 
Fuller, O. B. 
Garrett, W. A. 
Goodykoontz, Wells 
Green, Samuel M. 
Groesbeck, Alexander J. 
Guild, Roy B. 
Gundaker, Guy 
Hall, H. L. 
Halley, William 
Hammersmith, A. A. 
Hanson, Rasmus 
Hardesty, Florence M. 
Harper, Robt. N. 
Haynes, Stanford L. 
Head, Hayden 
Hughes, L. A. 
Hyman, T. G. 
Ireland, W. E. 
Jackson, William P. 
Jacobs, Solon 
Jaffa, Nathan 
James, Lee Warren 
Jermyn, Rollo 
Johnson, R. A. 
Jones, Thomas E. 
Junker, Wm. E. 
Kaufman, D. J. 
Keeler, Fred L. 
Kephart, H. M. 
Kern, Mrs. E. K. 
Kiesewetter, L. F. 
Kirkbride, Franklin B. 
Kirschbaum, David 
Klauss, Otto L. 
Knott, Mrs. Arabella 
Kotecki, Louis M. 
Kresge, S. S. 



Grasmere, N. Y. 
New Bern, N. C. 
Saginaw r , Mich. 
Rosebank, N. Y. 
Scranton, Pa. 
Sherman, Tex. 
Washington, D. C. 
Birmingham, Ala. 
Indianapolis, Ind. 
Oakland, Cal. 
Boise, Idaho. 
Lansing, Mich. 
Ridgeway, Va. 
Williamson, W. Va. 
Springfield, Mass. 
Lansing, Mich. 
New York city. 
Philadelphia, Pa. 
Santa Fe, N. Mex. 
Yonkers, N. Y. 
Massillon, Ohio. 
Grayling, Mich. 
Concordia, Kan. 
Washington, D. C. 
Springfield, Mass. 
Sherman, Tex. 
Santa Fe, N. Mex. 
New Bern, N. C. 
Yates Center, Kan. 
Salisbury, Md. 
Birmingham, Ala. 
Roswell, N. Mex. 
Dayton, Ohio. 
Scranton, Pa. 
Laurel, Md. 
Scranton, Pa. 
Brooklyn, N. Y. 
Washington, D. C. 
Lansing, Mich. 
Harrisburg, Pa. 
Washington, D. C. 
New York city. 
New York city. 
Philadelphia, Pa. 
Indianapolis, Ind. 
Fort Scott, Kan. 
Milwaukee, Wis. 
Detroit, Mich. 



No. 1] 



DELEGATES TO NATIONAL CONFERENCE 



133 



Lafean, D. F. 
Laing, James 
Leland, Henry M. 
Lippy, T. S. 
Lynch, James J. 
MacCorkle, W. A. 
MacDonald, A. F. 
McGuire, Laurence 
McLarin, H. M. 
McMullen, Hugh A. 
McMurtrie, U. 
McNabb, P. J. 
Magee, Robert V. 
Mason, Jos. C. 
Mayfield, Max 
Merwin, E. C. 
Miller, Walter P. 
Moore, C. Lee 
Mott, C. S. 
Myers, W. H. 
Xcslen, C. Clarence 
Odell, Samuel 
Ogden, William J. 
Payne, W. L. 
Pease, J. Lorin 
Perry, John H. 
Perkins, Henry J. 
Phelps, Harry 
Pierson, Arthur 
Pittman, Key 
Randle, Arthur E. 
Raymond, Thomas L. 
Read, William T. 
Reese, Andrew 
Rennie, T. H. 
Roberts, E. E. 
Rogers, Frank F. 
Royer, R. Stuart 
Ruth, B. Frank 
Samter, Samuel 
Saville, Thomas 
Schieffelin, Wm. Jay 
Schlueter, Harry 
Shaw, Edgar D. 
Shober, F. L. 
Slugg, Morris L. 
Smith, Alfred E. 
Smyth. Calvin M. 



Harrisburg, Pa. 
Tottenville, N. Y. 
Detroit, Mich. 
Seattle, Wash. 
Yonkers, N. Y. 
Charleston, W. Va. 
Washington, D. C. 
New York city. 
Washington, D. C. 
Cumberland, Md. 
Indianapolis, Ind. 
New York city. 
Watertown, Conn. 
Springfield, 111. 
New York city. 
Massillon, Ohio. 
Philadelphia, Pa. 
Richmond, Va. 
Flint, Mich. 
Wakefield, Kan. 
Salt Lake City, Utah 
Lansing, Mich. 
Baltimore, Md. 
Topeka, Kan. 
Oakland, Cal. 
' Southport, Conn. 
Springfield, Mass. 
Howells, Neb. 
Westfield, ,N. J. 
Washington, D. C. 
Washington, D. C. 
Newark, N. J. 
Trenton, N. J. 
Massillon, Ohio. 
Pell City, Ala. 
Washington, D. C. 
Lansing, Mich. 
Fredericksburg, Va. 
Reading, Pa. 
Scranton, Pa. 
Scranton, Pa. 
New York city. 
New York city. 
Washington, D. C. 
Philadelphia, Pa. 
Belfast, Me. 
New York city. 
Philadelphia, Pa. 



134 



CONFERENCE ON WAR ECONOMY 



[Vol. VIII 



Snyder, Charles A. 
Springer, Frank 
Steinhardt, John 
Stern, Erich C. 
Thrift, James F. 
Thorn, Corcoran 
Thurmond, J. S. 
Tippy, Worth M. 
Tredwell, E. A. 
Trcpp, Eugene 
Upmeyer, Wm. H. 
Van Duyne, Harrison R. 
Vandernoot, P. J. 
Vaughan, Coleman C. 
Verdon, F. A. 
Vyne, Leonard 
Wadhams, John H. 
Walsh, Wm. J. 
Webster, Morris C. 
Weesner, M. L. 
Wells, Harold B. 
White, Gaylord S. 
White, H. M. 
Wirth, William 
Woodward, James F. 
Yeager, Edward 
Zaritsky, Max' 



Harrisburg, Pa. 
Washington, D. C. 

Nebraska City, Neb. 
Milwaukee, Wis. 
Baltimore, Md. 
Washington, D. C. 
Alderscn, W. Va. 
New York city. 
New York city. 
Scranton, Pa. 
Milwaukee, Wis. 
Newark, N. J. 
Washington, D. C. 
Lansing, Mich. 
West New Brighton, N. Y 
Newark, N. J. 
Torrington, Conn. 
New York city. 
Hartford, Conn. 
Red Cloud, Neb. 
Bordentown, N. J. 
New York city. 
Petersburg, Va. 
Scranton, Pa. 
McKeesport, Pa. 
Reading, Pa. 
New Y'ork city. 



% 



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